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Effect of Carbon Tax on Reverse Logistics Network Design

K. Nageswara Reddy, Akhilesh Kumar, Joseph Sarkis, Manoj Kumar Tiwari

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DOI: [Link]
Reference: CAIE 106184

To appear in: Computers & Industrial Engineering

Received Date: 20 March 2019

Revised Date: 12 September 2019
Accepted Date: 14 November 2019

Please cite this article as: Nageswara Reddy, K., Kumar, A., Sarkis, J., Kumar Tiwari, M., Effect of Carbon Tax
on Reverse Logistics Network Design, Computers & Industrial Engineering (2019), doi: [Link]
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 Effect of Carbon Tax on Reverse Logistics Network Design

K Nageswara Reddy†, Akhilesh Kumar†*, Joseph SarkisϮ, Manoj Kumar Tiwari†

(knreddy@[Link]; akumar@[Link]; jsarkis@[Link]; mkt09@[Link])

† Department of Industrial and Systems Engineering, Indian Institute of Technology

Kharagpur, W. Bengal, 721302, India

Ϯ Foisie School of Business, Worcester Polytechnic Institute, Worcester, MA 01609-2280, USA

Acknowledgements

This research is supported by the European Union Europe Aid-funded Project “EU-India

Research & Innovation Partnership for Efficient and Sustainable Freight Transportation

(REINVEST),” Contract Number: R/141842.

___________________________
*Corresponding Author
 Effect of Carbon Tax on Reverse Logistics Network Design

Abstract

Reverse logistics network design (RLND) is getting momentum as more

organizations realize the benefits of recycling or remanufacturing of their end-of-

life products. Similarly, there is an impetus for organizations to become more

environmentally conscious or green. This environmental context has driven many

organizations to invest in green technologies, with a recent emphasis on reducing

greenhouse gas emissions. This environmental investment situation and decision

can be addressed through the integration of facility location, operational planning,

and vehicle type selection, while simultaneously accounting for carbon emissions

from vehicles, inspection centers, and remanufacturing centers in a reverse

logistics (RL) context. In the current study, we present a mixed-integer linear

programming (MILP) model to solve a multi-tier multi-period green RL network,

including vehicle type selection. This research integrates facility locations,

vehicle type selection with emissions producing from transportation and

operations at various processing centers. Prior research does not account for

carbon emissions for this design problem type. Valuable managerial insights are

obtained when incorporating carbon emissions cost.

Keywords: Reverse Logistics; Remanufacturing; Network Design; Mixed Integer

Linear Programming; Carbon Footprint

1
1. Introduction

Throughout the history of corporate environmentalism, environmental actions and concerns

have evolved from a localized, pollution emissions perspective, to a global concern on general

environmental sustainability through such efforts as the United Nations Global Compact (Kell,

2003). During the past three decades, there have been many international conferences and

treaties, including the recent Conference of Parties (COP) emphasizing the need to rein in

global climate change greenhouse gas (GHG) emissions (Boucher et al., 2016).

There is a consensus among world leaders for the need to limit GHG emissions. Global

organizations recognize the need to consider inter-generational sustainability as a means of

survival, given that a significant share of the economy heavily burdens the natural resource

base, which is continuously depleting. Among many popular corporate environmental

sustainability initiatives remanufacturing and its supporting activities will play a vital role to

extend the life of resources and materials; while seeking to limit pollutant emissions (Kerr &

Ryan, 2001; Diener & Tillman, 2015). In addition to this environmental benefit, business

benefits also exist. Firms can strategically distinguish themselves from competitors by reducing

their costs, adding value to their supply chain and end customers while achieving

environmental sustainability through RL and remanufacturing efforts (Kumar, Chinnam, &

Murat, 2017).

Remanufacturing refers to “activities that restore used products or their major modules

to an operational condition for use in place of a new product or other channels” (e.g., spare

parts) (Guide, 2000). The U.S. Environmental Protection Agency (EPA) advocates

remanufacturing practice as an energy-efficient, economical and environmentally friendly

approach for reducing the industrial waste (US EPA, 1997). Moreover, it is also worth for firms

to overlook the factors that influence the emissions produced in RL network and its operations.

Factors that can influence emissions include the size of remanufacturing, collection, and

2
inspection center facilities, vehicle type, vehicle loads, and the distance they travel (Cachon,

2014; Benjaafar et al., 2013).

RLND has traditionally focused on network, logistics processes, and managing efficient

returns. However, with an ever-increasing interest in corporate environmental sustainability

measures, firms are not only aiming for an efficient network design but also carbon footprint

reduction, seeking the complete transformation of the supply chain into a green and closed-

loop supply chain (CLSC) (Devika, Jafarian, & Nourbakhsh, 2014; Sarkar, Ullah, & Kim,

2017). Greening, the supply chain goes beyond complying with environmental legislation and

regulations; closing the supply chain loop leads to the efficient returns management and

remanufacturing includes additional environmental and business benefits.

RL a necessity for effective remanufacturing, includes “the process of planning,

implementing and controlling reverse flows of raw materials, in-process inventory, packaging,

and finished goods, from manufacturing and distribution or use point, to the point of recovery

or point of proper disposal” (Tibben-Lembke, 1998; Meade, Sarkis, & Presley, 2007). RL

activities include the following tasks: creating inspection and remanufacturing centers,

managing center throughput to satisfy demand, choosing between storing as inventory or

purchasing new products or disposing of returned products. An important aspect to these RL

activities, that has seldom been investigated in the literature is vehicle type selection and has

been recognized as needed direction research in vehicle allocation within greening of supply

chains (Lin et al. 2014). The Vehicle type selection problem can be altered to find an optimal

number of vehicles of different type to meet customer demand while minimizing total

transportation cost. These goals have evolved to include more efficient energy usage and

carbon emissions reductions. The inclusion of carbon emission costs at various inspection and

remanufacturing centers and vehicle types can substantially alter the existing dynamics of these

3
problems. Thus, the green reverse supply chain problem should consider RL, vehicle type

selection, and carbon emissions.

Early researches in the area of RLND have considerably explored the relation between

traditional forward and reverse logistics. These studies focused on the topological and

methodological level. At topological level aim was to analyze the effect of product recovery

on the network structure. It was highlighted that the used products availability for recovery is

far more difficult to control than the traditional supply chain resources. Hence, there might be

a substantial mismatch between demand and supply regarding timing and quantity in a recovery

network. Moreover, in general, used products availability and quality are not known in

advance. Thus uncertainty in supply becomes a key characteristic for recovery networks

(Fleischmann & Kuik, 2003).

At the methodological level, the coordination between exogenous demand and supply

is represented by constraints makes things more difficult than traditional forward logistics

network design. MILP approach is mostly used in modeling facility location problem in the

logistics network. Numerous researchers have adapted an MILP approach to model problems

in RL context (Fleischmann et al., 1997).

Now, it is important to describe our contributions to the body of literature.

i. Developing an MILP model to find optimal inspection and remanufacturing

locations.

ii. Incorporated selection of appropriate vehicle type options to carry the goods

among centers in the reverse supply chain. These options include trucks with

various capacities.

iii. Keeping a bigger picture of the green supply chain, we have accounted for carbon

emissions from vehicles, facilities such as inspection and remanufacturing centers

in an RL context.

4
 iv. Further, as mentioned earlier “uncertainty a major characteristic of recovery

networks”, we considered operating costs at inspection and remanufacturing

centers to be time-varying. A dynamic product return factor is also being modelled.

This dynamic decision environment is capable of incorporating uncertainties

reflected in such dimensions as seasonally varying costs.

In totality, we model a multi-period, green reverse supply chain problem to address

interrelated decisions including a number of inspection and remanufacturing centers, number,

and type of vehicles, disposal and inventory quantities, and amount of virgin product quantity

purchase in each period. To determine the environmental parametric influences on the reverse

supply chain design investigation, decisions made with and without carbon emission cost

inclusion are included in the analysis.

The paper is structured in the following way: Section 2 provides a foundational

literature survey placing this study in the broader and emergent research literature on designing

green supply chains and in this case greening of multi-tier reverse supply chains. Section 3

introduces the problem definition for our research setting. Section 4 provides details of MILP

formulation for the green reverse supply chain. We present results along with discussions in

section 5. In Final section, the conclusions, as well as the future scope of this paper, are

presented.

2. Literature review

Mandatory regulations, social image, and building market competitive advantages are driving

manufacturers to integrate RL into the supply chain. Merging RL into existing logistics design

is growing within logistics and supply chain strategic design research (Fleischmann et al.

2001). For solving the RLND problem, various modeling approaches such as mixed-integer

location, continuous approximation, and stochastic location models have been developed

(Fleischmann et al. 2004). The extant research has introduced models with significant

5
complexity, including various analytical modeling and pricing models with an explicit focus

on business and pricing concerns (Pokharel & Mutha, 2009; Govindan & Soleimani, 2017).

Interestingly, in many of these modeling efforts, environmental issues typically took a backseat

to economic issues. For example, Srivastava, (2008) utilized combinatorial optimization to

make various decisions like reuse, refurbish, remanufacture to maximize profit.

Multi-period RL network models focusing on long-term dimensions allow for better

strategic decision analysis in some research (Lee & Dong 2009). This literature also

incorporated the dynamic nature of locations allocation and various costs, such as operating

costs. Yet, integrating quality of used products into these models is limited. Further information

can be gleaned from considering facility location analyses with unlimited capacity in an RL

network, one of which has been applied to collecting end-of-life vehicles (Cruz-rivera & Ertel

2009). From these results, it was found that transportation cost is the determinant factor for the

RL network. Another avenue of research focuses on solving product characteristics and designs

in RL network, where MILP formulations seem like a tool of choice (Das & Chowdhury 2012).

Rahimi & Ghezavati, (2018) designed an RL network to recycle the construction and

demolition waste with consideration of the social impact and environmental effect along with

cost in a multi-period setting. Özceylan et al. (2017) developed a model over a finite planning

horizon to design CLSC for recycling end-of-life vehicles in turkey. Various stages of RL, such

as the collection of core returns, components recovery, and producing products with various

quality levels have been considered as necessary modelling aspects (Das & Chowdhury, 2012).

These issues are further integrated into the models in this paper.

The emission cost due to transportation and operations at facilities is an important

aspect in RLND. Recent expansion and consideration of broad logistics network designs are

integrating both forward and reverse flows with a goal to reduce the carbon footprint, and total

cost through the supply chain is starting to become integrated into the decision-making

6
environment (Choudhary et al. 2015); Chaabane et al. 2012). Fahimnia et al. (2013) evaluated

and analyzed the effect of carbon emission on forward and reverse supply chain and also

validated for an Australian based company (TexF). Carbon footprint based reverse logistic

designs included tools focused on transportation characteristics as well (Kilic, Cebeci, &

Ayhan, 2015; Bing et al. 2014). Guo et al. (2017) developed a model for network and route

planning of an integrated forward and reverse logistics. Parametric consideration and valuation

using carbon markets and credit may play an important role for design purposes since these

tradeable permits can affect various cost structures and technological decisions in EL designs

(Kannan et al. (2012)). In this previous work, authors considered carbon emissions only

because of transportation or processing at facilities. However, in this paper, the carbon

emissions from both activities are considered.

Multi-period reverse logistics network designs have included inventory as a major

decision characteristic, balancing inventory and disposal costs (Alumur et al. (2012)).

Balancing the logistics network design decisions may also include the level of new versus

reused modules in manufacture (Mutha & Pokharel (2009)). These dimensions are also

introduced in this study, further expanding the decision environment by incorporating broader

realistic complexities.

There have been several papers which have focused on routing problems for reverse

network design. A vehicle routing problem (VRP) with simultaneous pickup and delivery has

been introduced by Hezer and Yakup (2010) and solved using bacterial foraging optimization

algorithm. A vehicle routing problem was used to address a South Korean case (Kim et al.

2009) using a Tabu search heuristic method for end-of-life products in RL. Carbon emissions

based logistic-network planning was also completed (Wanke et al. 2015) with two types of

costs – transportation and stock holding cost in a network - being considered integrating

environment related expenses. Kassem & Chen, (2013) introduced an RL VRP problem with

7
time windows where return/pickup of products are allowed to happen only during certain time

periods and have tried to address the problem using heuristics and tried to improve the runtime

of results by using simulated annealing procedure.

In these previous studies mentioned above, studies considered either Vehicle type

selection or carbon emissions but did not consider these elements simultaneously. In practical

situations, the cost parameters, quality, and quantity of returns vary over different planning

periods. These dynamic characteristics are incorporated into the model by considering it as a

multi-period problem. In logistics or supply chains, transportation plays a major role. To reduce

costs and manage emissions due to the transportation, vehicle type selection is integrated into

the model.

A green image is achieved by implementing the green technologies for transportation

and processing of materials at facilities. The need to investigate the relationships between green

supply chain and sustainability in RL has been well established (Govindan et al. 2016; Zhao &

Li, 2016). Further, in today’s context, it is certain that the transport sector needs to shift their

attention from minimizing total operational costs to sustainability. Motivated by such findings,

this integrated dynamic research is the attempt of its kind in the literature to incorporate

aforementioned parameters to formulate an MILP model for RLND to help the practitioner

community by providing valuable managerial insights. Also, it imparts insights for researchers

for modelling and evaluating results in this environment.

3. Problem Description

The network schematic for a reverse supply chain, which can be viewed as a four-tier supply

chain, is presented in Figure 1. The first tier represents the number of fixed collection centers

responsible for collecting and storing the used products from customers. Inspection centers

appear in the second tier. These facilities inspect and classify used products into different

categories – a triage based on their quality. Products with good quality are remanufactured by

8
the OEMs in the next tier, while products unsuitable for remanufacturing are disposed. The

third tier includes remanufacturing centers for recovering used products that arrive from the

inspection centers. In the third tier, new products are purchased to satisfy the demand when

there is lack of sufficient cores to process. Finally, the fourth tier represents several fixed

markets which create demands for products, and return a portion of used products to collection

centers.

<< Insert Figure 1 here >>

The objective is to maximize the total firm’s profit including revenue from the sale of

products and costs such as opening, carbon emissions and operating expenses of inspection and

remanufacturing centers, disposal cost, inventory holding cost, transportation and emission

cost from vehicles and purchase cost of virgin products. We assume here that remanufacturing

is an attractive option, and thus, firms try to meet most of the demand using the remanufactured

product. In the remanufactured products shortage case, firms are assumed to purchase virgin

products. This cost can be used as the manufacturing cost of virgin products.

In this setting, it is considered that collection centers are the same as markets and fixed.

The demand for products exists only in the markets. Moreover, core returns are assumed to be

depending on previous periods demand, and the returned products quality is presented in terms

of yield-factor at inspection centers. The returned products are inspected at the inspection

center, and an associated yield is determined. In most remanufacturing industries, yield issues

are customary given all core returns are not suitable for remanufacturing. Such factors are

attributed frotom the customer product usage and its nature and can control yield to somewhat

by firms. This yield differs from one inspection center to another based on the type of

technologies used for inspecting returns.

9
 We considered disposal and inventory decisions, only at inspection centers with

corresponding disposal and inventory holding costs respectively. Since this study’s focus is on

strategic level decisions, operational decisions and bill of materials are not presented.

Some assumptions considered in the model include:

 The supply of returns and demand are deterministic and dynamic.

 The quality of the products is deterministic and dynamic.

 No inventory is present at inspection centers in the initial and final periods.

 The selling price of the remanufactured product is the same as the new product and

constant throughout the planning horizon (Gan et al. 2015).

 Location of collection centers/markets is known in advance.

4. Mathematical Modelling

In this section, a MILP model was proposed to design a multi-echelon RL network. The model

includes many practical significant features such as carbon emissions, a return factor, yield and

a multi-period setting along with disposal, inventory, purchase decisions and vehicle type

selection for transportation. The model notations including sets, parameters and decision

variables are presented below.

4.1. Notation

Sets

T – Planning horizon time periods.

V - Set of vehicles of the different type available for transport.

I - Set of potential inspection centers.

C - Set of collection centers (same as markets).

R - Set of potential locations remanufacturing centers.

M - Set of markets.

Parameters

10
P - The selling price of the product per unit.

λ - Yield factor at inspection center.

Sct - Returns at collection center c ∈ C in period t ∈ T ( Sct  f ct Dmt 1 ).

CAPI i - Maximum capacity of an inspection center i ∈ I.

CAPRr - Maximum capacity of a remanufacturing center r ∈ R.

f ct - Return factor at collection center c ∈ C in period t ∈ T.

VCAPv - Maximum capacity of a vehicle of type v ∈ V.

SCI i - Setup cost to open an inspection center i ∈ I.

SCRr - Setup cost to open a remanufacturing center r ∈ R.

DC – Unit disposal cost.

PC – Unit purchase cost.

IC – Unit inventory holding cost.

OCRrt - Cost to process one unit at remanufacturing center r ∈ R in period t ∈ T.

OCI it - Cost to inspect one unit at inspection center i ∈ I in period t ∈ T.

E v - Carbon emissions per unit distance for vehicle type v ∈ V.

EI i - CO2 emissions per unit at the inspection center i ∈ I.

ERr - CO2 emissions per unit at the remanufacturing center r ∈ R.

Ω - Carbon emissions costs per unit ton of CO2.

dC ci - Distance between collection center c ∈ C and inspection center i ∈ I.

dI ir - Distance between inspection center i ∈ I and remanufacturing center r ∈ R.

dRrm - Distance between remanufacturing center r ∈ R and market m ∈ M.

FTCv - Fixed cost for hiring vehicle type v ∈ V.

VTC v - Variable cost to travel travelling unit distance for vehicle type v ∈ V.

11
Dmt - Demand at market m ∈ M in period t ∈ T.

Decision variables
t
xCciv - Product quantity moved from c ∈ C to i ∈ I in t ∈ T using v ∈ V.

t
xI irv - Product quantity moved from i ∈ I to r ∈ R in t ∈ T using v ∈ V.

t
xRrmv - Product quantity moved from r ∈ R to m ∈ M in t ∈ T using v ∈ V.

zrt - 1 if remanufacturing center r ∈ R is open in period t ∈ T, otherwise 0

yit - 1 if inspection center i ∈ I is open in period t ∈ T, otherwise 0

t
NCciv - Vehicles of type v ∈ V required for transporting products between c ∈ C and i ∈ I in t

∈ T.

t
NI irv - Vehicles of type v ∈ V required for transporting products between i ∈ I and r ∈ R in t ∈

T.

t
NRrmv - Vehicles of type v ∈ V required for transporting products between r ∈ R and m ∈ M in

t ∈ T.

IQit - Inventory quantity at i ∈ I in t ∈ T.

DQit -Disposal quantity at i ∈ I in t ∈ T.

PQrt - Purchase amount at r ∈ R in t ∈ T.

4.2. Formulation

Given the notation and decision variables mentioned above, the MILP formulation for the

proposed network seeks to maximize total network profitability.

12
Objective:

  
Maximize Z  p    xRrmv t
  
     SCI i yit  yit 1   SCRr zrt  zrt 1  
rR mM vV tT  tT  iI rR 
 t 
  OCIit xCcivt
  OCRrt xIirv    DQi DC   IQi IC   PQr PC
t t t

tT vV  cC iI iI rR  tT iI tT iI tT rR


    NCciv t
 FTCv  VTCv dCci    NI irvt  FTCv  VTCv dI ir 
tT vV  cC iI iI rR

 
  NRrmv
t
 FTCv  VTCv dRci      dCci NCcivt Ev
rR mM   tT vV  cC iI
   t 

  dI ir NI irv
t
Ev    dRrm NRrmv
t
Ev        EI i xCcivt
  ERr xI irv    (1)
iI rR rR mM   tT vV  cC iI iI rR  

Constraints:

 xC
iI vV
t
civ  Sct c  C , t  T (2)

i  xCciv
t
  xI irv
t
 IQit  DQit i  I , t 1 (3)
c C v V r R v V

i  xCciv
t
  xI irv
t
 IQit  IQit 1  DQit i  I , t  2..T (4)
cC vV rR vV

 xI
iI vV
t
irv  PQrt    xR
mM vV
t
rmv r  R, t  T (5)

 xR
rR vV
t
rmv  Dmt m  M , t  T (6)

 xC
c C v V
t
civ  yit CAPI i i  I , t  T (7)

 xI
i I v V
t
irv  zrt CAPRr r  R, t  T (8)

t
NCciv  xCciv
t
VCAPv c  C ,  i  I ,  v  V , t  T (9)

t
NI irv  xI irv
t
VCAPv  i  I ,  r  R,  v  V , t  T (10)

t
NRrmv  xRrmv
t
VCAPv r  R,  m  M ,  v  V , t  T (11)

yit  yit 1 t  T , i  I (12)

13
zit  zit 1 t  T , r  R (13)

yi1  0 i  I (14)

z1r  0 r  R (15)

IQi1  0 i  I (16)

IQiT  0 i  I (17)

yit  {0,1} t  T , i  I

zrt  {0,1} t  T , r  R

IQit  0 i  I , t  T

DQit  0 i  I , t  T

PQrt  0 i  I , t  T

t
NCciv 0 c  C ,  i  I ,  v  V , t  T

t
NCirv 0  i  I ,  r  R,  v  V , t  T

t
NCrmv 0 r  R,  m  M ,  v  V , t  T

t
xCciv 0 c  C ,  i  I ,  v  V , t  T

t
xI irv 0  i  I ,  r  R,  v  V , t  T

t
xRrmv 0 r  R,  m  M ,  v  V , t  T

The objective function (1) is to maximize the network total profit. Revenue is obtained

from product sales. Total profit is determined by deducting various costs from revenue. The

costs are comprised of: fixed setup and operating costs at facilities (inspection centers and

remanufacturing centers), disposal and inventory holding cost, cost for purchasing virgin

producy, transportation costs and costs reated to carbon emissions (both due to facilities and

tranprotation).

14
 Constraint (2) is the flow balance constraint at collection centers which ensures flow

between collection and inspection centers up to availabile supply of returns. Constraint (3) and

constraint (4) are flow balance constraints for t = 1 and t = 2...T respectively, showing the

relationship between the disposal and inventory quantities at inspection centers. Constraint (5)

is a flow balance constraint at the remanufacturing center that indicates the relation between

the amount of returns remanufactured and purchasing new products depending on demand.

Constraint (6) implies that the products transported from remanufacturing centers to markets

are no more than the demand. Constraints (7) and (8) put capacity restrictions at inspection

centers and remanufacturing centers with the opening condition. Constraints (9) - (11)

represents the number of vehicles used for shipping products between collection and inspection

centers, inspection and remanufacturing centers, and remanufacturing center and market

utilizing no more than the maximum capacity of vehicles. Constraints (12) and (13) assure that

once a facility (inspection or remanufacturing) is installed at a location, it should be operated

till the end of the planning horizon. Constraints (14) and (15) ensure that there is no installation

of inspection or remanufacturing centers in the first period. Constraints (16) and (17) imply

that no inventory kept at the initial and final period of the planning horizon. Lastly, the

remaining constraints are domain restrictions.

5. Results

To establish the performance of developed MILP, a numerical investigation on an example

problem derived from actual remanufacturer setting is preseted. It should be noted here that the

primary focus of doing this exercise is to develop a good intuition for drivers of the cost-

efficient green reverse supply chain. Since this study entertains the possibility of investing in

carbon efficient technologies at inspection/remanufacturing centers as well as using carbon

efficient vehicles, this analysis is relevant for firms interested in becoming green either for

economic or regulatory reasons.

15
 The proposed model is solved using Microsoft Visual studio 2010 ultimate integrated

with IBM ILOG CPLEX 12.5 on Intel® Core(TM) i5-4570T, 2.90 GHz processor with 8 Gb

RAM.

5.1. Numerical Illustrative Investigation

In this section, we present a numerical study for an India based battery remanufacturing

company. The primary focus of the numerical example is to illustrate the model and then

investigate various sensitivity analysis relationships. These relationships help develop an

intuition for cost-efficient green reverse supply chain network design. For the parameters

selection design, we have taken into account inputs from the illustrative case company and

extant literature.

5.1.1. Input Parameters

The firm sells its products in five markets, as considered in the numerical example. The firm

can establish collection centers at the point of sale to collect the used products over a planning

horizon comprising five periods. Management is planning to set up inspection centers at five

potential locations and remanufacturing centers at three potential locations for processing the

used products. Management is planning to hire three types of vehicles with different fixed and

variable costs, capacity and carbon emissions for carrying products between centers. Therefore

management wants to know where to install and locate the centers to reduce the setup cost,

transportation, and emission costs and which and how many vehicles to be selected to carry

products between centers.

The selling price and purchase cost of the products are in Indian Rupees (INR) 100 per

unit and INR 60 per unit, respectively. These values are constant through the planning horizon.

The emissions cost for transporting the products from one center to another and at inspection,

16
and remanufacturing centers are INR 4 per kg of CO21. The inventory held at the inspection

center at the cost of INR10/unit/period and disposed at the cost of INR4/unit if needed.

Table 1 shows the demand in each market. The data regarding distances between two

different centers are provided in Tables 2(a) and 2(b) respectively.

<< Insert Table 1>>

<< Insert Tables 2 (a) and 2 (b) >>

Various parameters such as yield, capacity restrictions and different costs are shown in

Table 3. The installation cost of remanufacturing centers is always greater than the inspection

centers as expected in practical scenarios. The centers using advanced technology are more

carbon efficient, but their setup cost is high.

<< Insert Table 3 >>

The supply at collection centers depends on the percentage of returns (also known as

return factor) collected from the previous periods and taken as a value between 0.4 and 1. The

supply of returns that are collected at five collection centers from earlier demand shown in

Table 4. There are no returns in the first period, and hence total demand is only met by new

products in this initial period.

<< Insert Table 4 >>

For carrying products, from one center to another in the problem environment, the firm

hired three types of vehicles with different fixed cost and variable cost, carbon footprints, and

capacity (Table 5).

<< Insert Table 5 >>

5.1.2. Results
To understand the impact of investing in carbon-efficient technologies, we have compared all

1 Center for Science and Environment ([Link]

taxmr-finance-minister)

17
the findings with and without a carbon emissions cost. The time taken to solve the problem is

578 seconds, for the case with emission cost and 410 seconds for the case without emission

cost.

The facility location decision at a particular site is based on the capacity of the center,

set up cost and carbon emissions released at the facility. As shown in Table 6, significant

change is observed in the location of centers, when carbon emissions cost is added to the model.

The results indicate that inspection centers are installed at locations 2, 3 and 4 when carbon

emissions cost is incorporated. The inspection centers are installed in sites 2 and 3 because they

have low set up costs and high yields with the same capacity. It is interesting to note that

inspection center 4 is preferred over inspection center 1, even though setup cost is relatively

high for inspection center 4. This result occurs because the model prefers inspection centers

with high-yield, a quality measure. When carbon emissions costs are considered, inspection

centers are installed at locations 4 and 5 due to their carbon efficiency. To process remaining

quantities, one more inspection center is installed at location 2, which has the highest yield

among locations 1, 2, and 3. We observed that yield plays an important role along with carbon

emissions costs in installing inspection centers at a particular location.

<< Insert Table 6 >>

Remanufacturing centers are installed at locations 1 and 2 when there are no carbon

emissions costs integrated into the model. The remanufacturing center is installed at location 1

because of a low setup cost. It should be noted here that there is no yield factor associated with

the remanufacturing center. All parameters for sites 2 and 3 are similar, so the remanufacturing

center is installed at location 2 to minimize the total transportation cost. Intuitively, with the

presence of carbon emissions costs in the model, the remanufacturing centers are installed at

locations 2 and 3 because of low carbon emissions costs even though they have high setup costs

(almost equal to 2 times the installation cost at location 1).

18
 We also observed that all types of vehicles were selected to transfer products from one

center to another center based on capacity and carbon emissions. For example, if a firm wants

to move a quantity of 157 units from collection center 1 to inspection center 4, then it is better

to use two type 2 vehicles instead of one type 3 vehicle because its transportation and emission

costs are less.

In general, the inventory was kept when: i. There were excess returns; ii. Limited

capacity in centers; and iii. In a situation when operation and transportation costs to reach the

market were significantly higher (as the operating costs are time-varying or dynamic). The

inventory quantity at inspection centers in various time periods is shown in Table 7. For

example, the inventory quantity in period 2, at inspection center 2 is different in both cases

with and without carbon emissions cost and equal to eighty and two respectively. In the case

with carbon emissions costs, the minimum distance from inspection center 2 to the

remanufacturing centers is 69 km and, transportation cost and emission cost are 3160 and 248

respectively for a quantity of 262 units. However, in the case without emissions costs, the

minimum distance from inspection center 2 to remanufacturing centers is 48 km, and

transportation cost is equal to 2900 for carrying 340 units. So, to reduce the transportation cost

along with emission cost between centers, the products are kept as inventory and processed in

the following periods. All remaining inventory is disposed at the end of the planning horizon.

<< Insert Table 7 >>

In this model, we did not promote the disposal of the products unless there is high

inventory or no production existed in the succeeding period. The total disposal quantity in both

cases with and without carbon emissions costs is 120 and 70, respectively. Suppose 50

products are kept as inventory with a cost of 500, and if a firm disposes them at the cost of 200,

then a firm loses a total amount of 700. Suppose if a firm used them in the next period then the

processing and transportation charges to reach markets are about 1900, and the selling price is

19
equal to 5000, so the firm will get a profit of 3100. So, the firm should not promote disposing

of used products until the final period.

The purchase quantity is the amount to purchase from outsourced subcontractors when

the amount of supply cannot fulfill the demand. The purchase quantity at all remanufacturing

centers in various periods in both cases is shown in Table 8. The purchase quantity at

remanufacturing centers 2 and 3 is less in the case when carbon emissions costs are included

because the firm is always trying to remanufacture as many returns as possible. However, in

the case without carbon emissions costs, the purchase quantity at all remanufacturing centers

is relatively similar.

<< Insert Table 8 >>

Table 9 presents the comparison of various cost components with and without

emissions costs incorporated. It is interesting to note here that although direct emissions costs

are realized in vehicle and centers, it also affects all costs. This result clearly indicates the need

for investing in green technologies to reduce emissions and subsequently aid firm profitability.

<< Insert Table 9 >>

In the case, with carbon emissions costs included the installation cost is equal to 49500

when compared to a cost of 40000 in the case when carbon emissions costs are not included.

The emissions costs at the inspection and remanufacturing centers are equal to 13994 and 5942,

respectively. The total operations cost at the inspection and remanufacturing centers to perform

testing, sorting and remanufacturing operations is 57046 and 58819 in cases with and without

carbon emissions costs, respectively.

At inspection centers, the inventory is kept for further periods, and total inventory cost

is equal to 1890 and 1730 in situations with and without carbon emissions costs included,

respectively. If the demand is more than the supply, then it is fulfilled by: i. Inventory from the

last period; ii. Remanufacturing products from returns; and iii. Purchasing new products. The

20
total emission costs of vehicles for transporting products between collection and inspection

centers, inspection and remanufacturing centers, and remanufacturing center and markets are

8941. The total profit gained by the firm is the total revenue minus the sum of all costs, which

are 186337 and 235159 in cases with and without carbon emissions costs, respectively.

5.2. Sensitivity analysis

Next, the impact of various parameters including capacity level, purchase cost, disposal cost,

inventory cost, and the yield on the model are observed by keeping the other parameters static

in the scenarios; where scenario 1 is with emissions costs and scenario 2 does not include

emissions costs, as presented below.

5.2.1. Capacity Level

To understand the effect of capacity on profit, 8 experiments are executed on networks with

limited and unlimited capacity level (Table 10). For experiment 1, the inspection centers are

installed at locations 2, 4 and 5 owing to low carbon emissions and high yield. The

remanufacturing center is installed only at location 1 in experiment 2 even though it has higher

carbon emissions, but it is compensated by the unlimited capacity. The inspection center is

installed at location 4 with more yield and fewer carbon emissions in experiment 4. The

capacity level of all remanufacturing centers is unlimited in experiment 5, and the

remanufacturing centers are installed only at location 3, even though it has more setup cost, it

is preferred due to lower carbon emissions and transportation cost. The inspection center is

installed at location 4 with more yield and low carbon emissions. The remanufacturing center

is located at location 1 due to low setup and transportation costs; although it has more carbon

emissions in experiment 8 where the capacity level of all inspection and remanufacturing

centers is unlimited. From Table 10, the remanufacturing center is installed at location 2 when

21
there is a limited capacity level of remanufacturing centers. The inspection center is installed

at location 4 in all experiments and scenarios due to more yield, low carbon emissions, and

reduced transportation costs.

<< Insert Table 10 >>

5.2.2. Purchase cost

The purchase cost was varied from 10 to 60 per unit, and the profit values are observed in both

cases. From figure 2, we observe that there is an exponential relationship between profit and

purchase costs in both the cases. Also, the deviation between profits in both cases widens as

the purchase cost increases. That is, as the purchase cost increases, usage of the returned

products also increased, which led to lessened inventories and disposal. For example, there is

no remanufacturing completed up to a purchase cost of 28 per unit without emissions costs and

35 per unit with emissions costs included. Thus, all returns were disposed and with all demand

being fulfilled by new products.

<< Insert Figure 2 >>

5.2.3. Disposal cost

The disposal cost is the expense attributed to the disposal of an unused return at the inspection

center. The profit values as a result of varying the disposal cost from 2 per unit to 10 per unit

product are observed. From Figure 3(a), we observe that, in the scenario of without emission

cost, if the disposal cost is increased by a value of 2 per unit then the profit decreases at an

average value of 140. However, the profit reduces by an average value of 240 in the scenario

with emission cost up to disposal cost of 8 per unit, but further increase in disposal cost led to

lessened marginal decreases in the profit value and shown in figure 3(b).

<< Insert Figure 3(a) & 3(b) >>

22
5.2.4. Inventory Cost

Inventory cost is the cost for holding returns at inspection centers for use in later periods as

required. The impact of an increase in inventory cost (from 6 per unit to 12 per unit at an

increment by 2 per unit) on profit values was studied. It is observed that if the inventory cost

is low, then there is the likelihood of keeping more inventories at inspection centers. This

means inventory quantity held at inspection centers will decrease with inventory cost increases,

as expected. However, when inventory is stored because of limited remanufacturing centers

capacity, then a decrease in profit is observed with inventory cost increases.

In the scenario with carbon emissions costs included, the profit value reduces linearly

up to inventory costs of 12 per unit and later there is a lesser impact on the profit as shown in

Figure 4(b). From Figure 4(a), it observed that, the profit value decreases almost linearly as

inventory cost increases, when emissions costs are not included in the model. This result occurs

because as inventory cost increases the inventory quantity decreases but the processing and

transportation cost of those returned products increases which leads to a reduction in profit

values and hence the almost linear behavior.

<< Insert Figure 4(a) &4(b) >>

5.2.5. Yield

In our model, the yield corresponds to the percentage of useful returns after inspection. To

study the impact of yield, we tested the model with fixed values of high (0.8), medium (0.65),

low (0.4) yield values and mixed yield values (i.e., different yields across different inspection-

centers) and their subsequent effect on profit values. We observed that the profit with mixed

yield is almost the same when compared to the profit at high yields; in both cases with and

without emissions costs. This result can be attributed to inspection centers with higher yield

values being preferred if other parameters are kept constant.

23
 The tradeoff between yield and profit in both cases without and with emissions costs is

shown in Figure 5(a) and Figure 5(b) respectively. From these figures, we infer that, as the

yield is increased, the amount to remanufacture also increases which leads to a decrease in

purchase quantity. The remanufactured products fulfil most of the demand in higher yield

situations, and hence profit increases. A logarithmic relationship between yield and profit

values was found to exist in both scenarios.

<< Insert Figure 5(a) &5(b) >>

To further understand the dynamics of the of the parameter setting, we plotted

individual costs and decisions within the model with perturbations in each cost parameter. We

provide these results in Appendix for better understanding of readers.

In this study, the carbon emissions from transportation are calculated on the basis of

inter-facility distances. Since, collection centers (same as markets) do not include any

inspection or remanufacturing activities, the CO2 emissions at collection centers are not

considered. Increasing the supply of returns will increase both the carbon emissions and

transportation and operation costs but the usage of raw materials and decrease the wastage of

the products; affecting environmental performance.

5.3. Multi-objective Solution

The ultimate aim of single objective optimization is to determine the “best” solution that

minimizes or maximizes single objective function value which integrates all different

objectives into one. This type of optimization is used as it provides decision-makers with a

point solutions and insights into the nature of the problem. However, it provides only a single

optimal solution. In contrast, a multi-objective optimization is used when the problem consists

more than one conflicting objectives. It provides a set of alternative non-dominated solutions

that trade-off both objectives. The proposed model uses ‘carbon emissions’ as the primary

24
performance measure along with ‘total cost’. It is a general practice to see how a point solution

behaves on Pareto front of conflicting objectives. Towards this, we restructured our problem

as multi objective problem and solved it using weighted average method.

Objective Function:
i. Maximize Total Profit

  t 1 
 
Maximize Z1  p    xRrmv      SCI i yi  yi   SCRr zr  zr 
t t t 1 t
 
rR mM vV tT  tT  iI rR 
 t 
    OCI it xCciv
t
  OCRrt xI irv    DQi DC   IQi IC   BQr BC
t t t

tT vV  cC iI iI rR  tT iI tT iI tT rR


    NCciv t
 FTCv  VTCv dCci    NI irvt  FTCv  VTCv dI ir 
tT vV  cC iI iI rR


   NRrmv
t
 FTCv  VTCv dRrm  (1.a)
rR mM 

ii. Minimize Carbon emissions

 
Minimize Z 2       dC ci NC civ
t
E v    dI ir NI irv
t
E v    dRrm NRrmv
t
Ev 
tT vV  cC i I i I r R r R mM 

 t 
   EIi xCciv t
  ERr xIirv  (1.b)
tT vV  cC iI iI rR 

As two objectives are linear, we formulated the problem as a weighted sum of the two

linear objectives as follows.

Maximize 𝑍 = 𝑤1𝑍1 + 𝑤2𝑍2

Subject to Constraints 2 – 19
and 𝑤1 + 𝑤2 = 1

We solved this problem using CPLEX and Figure 6 shows a tradeoff between profit

and carbon emission costs. We transformed carbon emission into a cost by assuming a carbon

tax policy of INR 4 per kg of CO2.

25
 << Insert Figure 6 >>

In the single objective solution, the total profit without carbon emission cost is INR

215214 and carbon emission cost is INR 28876. We see that the single objective model is

providing overall best solution among all alternative solutions given by the multi-objective

model.

5.4. Discussion

It is generally expected that lower emissions lead to higher costs and our analysis revealed the

same. This internalization of externalities into the operations of systems provides a truer view

of the environmental and social costs of doing business. The analysis also shows that moderate

carbon taxes are sufficient to reduce emissions significantly. For example from table 9, we can

see that a 60% difference in profit is due to emission costs.

Multi-tier supply chain activity solution sensitivities to relatively modest emissions

costs changes should be carefully considered by managers and policymakers. Managers

anticipating new carbon emissions rules and regulations should consider how quickly they can

redesign their systems to respond to emergent policies. The timing of such revisions becomes

even more critical if profitability is to be optimized. Some organizations may be able to prepare

for regulatory eventualities related such environmental taxes or trading markets by

preemptively incorporating these costs into their management policy. There are benefits and

risks associated with such changes. Benefits may include having an initial first-mover

advantage over competitors; where learning and acceptance of management become critical

for successful and efficient implementation of new designs and operational policies. A major

disadvantage may result from delays in policies or regulations, that may never be forthcoming

and profitability of firms being affected.

26
6. Conclusion

In this paper, we present a mixed integer linear programming (MILP) model to solve a multi-

tier multi-period green RL network including vehicle type selection. The paper contributes to

the formulation and testing of the green RL model, which encompasses the vehicle type

selection problem while considering the carbon emissions environmental effects.

The proposed model has several practical implications. Namely, product returns are

collected in subsequent periods with some return rate in every period. Various kind of costs

and parameters, values were set according to standard followed by industry and extant

literature. The decisions made here were regarding the optimal selection of the sites for

installation of inspection and remanufacturing centers, the product quantity that to be

transported by which vehicle mode, how many vehicles to be used, the amount of quantity to

purchase, dispose or store in inventory. Fewer potential locations for center installations mean

that the distance between centers is greater with fewer possible routes. Thus, greater carbon

emissions are leading to decreases in total profit and an increase in carbon emissions and

transportation cost. Increasing the capacity and also the amount of used products results in

reduction of carbon emissions and thus increase in total profit of the firm.

This model and study provides a number of improvements and extensions on previous

remanufacturing network designs, but it has limitations and can be improved in a number of

ways. The model can be extended to a multi-product scenario at the component level. The

model can also be extended to take into account the other decisions on capacity. Our model can

easily be extended to account for capacity decisions such as invest, stay or disinvest to increase

or decrease capacities at new inspection or remanufacturing Center. The model only considered

one environmental dimension, carbon emissions. Localized and other polluting elements,

including other air emissions such as NOx and SOx, can be integrated. The multi-tier processes

27
in this network are also simplified, although realistic based on case company considerations.

More complex networks with variations in a variety of parameters make the model even more

complicated. Helping to identify heuristics and solutions taking advantage of the structure of

the model may be an important algorithmic solution, although the model is currently solvable

using commercial software.

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[Link]

32
 Tables

Table 1: Demand Data

Market 1 2 3 4 5 Total
Period 1 346 310 270 203 328 1457
Period 2 174 345 188 277 267 1251
Period 3 322 284 259 196 172 1233
Period 4 270 325 300 333 232 1460
Period 5 237 225 347 193 158 1160

Table 2(a): Distance Matrix between Collection (C) and Inspection (I) Centers

I1 I2 I3 I4 I5
C1 30 40 33 23 40
C2 40 45 35 41 33
C3 39 45 42 23 48
C4 31 39 21 22 36
C5 28 24 43 46 25

Table 2(b): Distance Matrix from I to Remanufacturing center (R) and R to Market (M)
I1 I2 I3 I4 I5 M1 M2 M3 M4 M5
76 48 63 66 47 R1 54 55 32 61 69
53 86 51 87 64 R2 69 62 49 43 66
64 69 85 87 71 R3 47 58 51 63 67

Table 3: Parameter values at centers

Inspection Centers Reman Centers
Parameters
1 2 3 4 5 1 2 3
Setup Cost 3500 3500 3500 6000 6000 10000 17000 17000
Carbon Footprint 3 3 3 0.5 0.5 3 0.5 0.5
Max. Capacity 400 400 400 400 400 400 400 400
Yield 0.51 0.95 0.63 0.85 0.75
Period
1 6 5 5 8 6 10 12 11
Operating Cost

2 5 7 8 6 8 10 11 12
3 7 7 5 6 8 12 10 11
4 8 5 6 6 5 11 12 10
5 5 8 6 7 6 12 11 10

33
 Table 4: Supply of Returns

Collection Center
1 2 3 4 5 Total % of Previous Demand
Period 2 235 223 243 122 282 1105 0.76
Period 3 151 186 133 122 168 761 0.61
Period 4 180 227 124 118 134 784 0.64
Period 5 186 283 273 190 162 1094 0.75

Table 5: Vehicles data

Vehicle Type 1 2 3
Fixed Transport Cost 100 120 200
Var Transport Cost 10 12 20
Carbon Footprint 0.25 0.30 0.45
Max. Capacity 60 80 150

Table 6: Setting up of centers

Center With Emission Cost Without Emission Cost
Inspection Centers 2, 4, 5 2, 3, 4
Reman Centers 2, 3 1, 2

Table 7: Inventory Quantity

With Emission cost Without Emission cost
Period
I Center Inventory I Center Inventory
2 2 80 2 2
2 4 52 3 68
2 5 28 4 48
3 4 29 4 55

34
 Table 8: Purchase Quantity
Purchase Quantity
Period
Without Emission cost With Emission cost
R1 580 580
1 R2 531 531
R3 346 346
R1 133 398
2 R2 164 47
R3 174 26
R1 163 409
3 R2 0 8
R3 322 76
R1 245 625
4 R2 185 119
R3 270 62
R1 97 347
5 R2 26 16
R3 237 0

Table 9: Various price/costs comparison with/out carbon emission costs

Parameter Without Emission cost With Emission cost
Selling price 656100 656100
Setup cost 40000 49500
Operation cost 58819 57046
Inventory cost 1730 1890
Disposal cost 280 480
Purchase cost 208380 215400
Transportation cost 111732 116570
Emission cost - Vehicle Not Considered 8941
Emission cost - Centers Not Considered 19936
Total Profit 235159 186337

35
 Table 10: Effect of Capacity on Network
Opening of Opening of R
Capacity Level
I Centers Centers
Profit
Inspection Remanufacturing Carbon Carbon Carbon Carbon
[Link]
Centers centers Inefficient efficient Inefficient efficient
Carbon Carbon Carbon Carbon
1 2 3 4 5 1 2 3
Inefficient efficient Inefficient efficient
1 UL L L L N Y N Y Y N Y Y 187280
2 L L UL L N Y N Y Y Y N N 195474
3 UL L UL L N Y N Y Y Y N N 195474
4 UL UL L L N N N Y N N Y Y 198658
5 L L UL UL N Y N Y Y N N Y 209035
6 UL UL UL L N N N Y N Y N N 207715
7 UL L UL UL N Y N Y Y N N Y 209035
8 UL UL UL UL N N N Y N Y N N 222658
Y – Opened N – Not opened UL – Unlimited L – Limited

36
 Figures

Figure 1: Green reverse supply chain network

Without Emission Cost With Emission Cost

500000
450000
400000
350000
Total Profit

300000
250000
200000
150000
100000
50000
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Unit Purchase cost

Figure 2: Tradeoff between purchase cost and profit

37
 235400
Without Emission Cost

235200
Total Profit

235000

234800

234600

234400
2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5
Unit Disposal Cost

Figure 3 (a): Tradeoff between disposal cost and profit – without emission cost

187800
With Emission cost
187600

187400
Total Profit

187200

187000

186800

186600

186400

186200
2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5
Unit Disposal cost

Figure 3 (b): Tradeoff between disposal cost and profit – with emission cost

38
 236200
Without Emission Cost
236000

235800

235600
Total Profit

235400

235200

235000

234800

234600

234400

234200
6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 11 11.5 12 12.5
Unit Inventory cost

Figure 4 (a): Tradeoff between inventory cost and profit – without emission cost

188500
With Emission cost
188000

187500
Total Profit

187000

186500

186000

185500
6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 11 11.5 12 12.5
Unit Inventory cost

Figure 4 (b): Tradeoff between inventory cost and profit – with emission cost

39
 240000

235000

230000

225000
Total Profit

220000
Without Emission Cost
215000

210000

205000

200000

195000

190000
0.4 0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 Mixed
Yield

Figure 5 (a): Tradeoff between yield and profit – without emission cost

200000

190000
Total Profit

180000

With Emission cost

170000

160000

150000
0.4 0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 Mixed
Yield

Figure 5 (b): Tradeoff between yield and profit – with emission cost

40
Figure 6: Tradeoff between carbon emissions (as cost) and profit

41
Highlights
1. Effective and practical framework for green reverse logistics network design.
2. A multi-period MILP model accounting locations, transportation, remanufacturing.
3. Accounted carbon emissions from facilities and transportation.
4. The effect of carbon tax on optimal decisions is presented.
5. Sensitivity of optimal decisions with respect to problem parameters is analysed.

42