An Integrated Closed-loop Supply Chain Configuration Model and Supplier Selection based on Offered Discount Policies

In this paper, a mathematical programming model is presented for integrated problem of closed loop supply chain network design and supplier selection. The suppliers propose discount policy based on purchase amount and loyalty of buyers which are both taken from the elements of Recency, Frequency and Monetary (RFM) technique. In contrast to the existing closed-loop supply chain network design models which select suppliers based on unit price and quantity discount, the proposed model considers loyalty discount policy along with unit price and quantity discount policy as elements of RFM technique in selecting suppliers. The main objective of this paper which is formulated by a mixed-integer programming model is to minimize the total cost through determining location of facilities, production plan, inventory levels, flows between facilities, transportation type, purchasing amount and selecting best supplier based on a beneficial relationship. Sensitivity analysis is carried out to validate the model and examine the effects of considering discount according to purchase amount and loyalty on the supply chains costs and decisions. Computational results show the effectiveness and usefulness of the model.