Closed-loop supply chain network design: A financial approach

The more common approaches used in the SCM consider only the physical logistic operations and ignore the financial aspects of the chain. This paper presents a financial approach to model a closed-loop supply chain design in which financial aspects are explicitly considered as exogenous variables. The model decides to determine the strategic decisions as well as the tactical decisions. The main contribution of this paper is to incorporate the financial aspects (i.e. current and fixed assets and liabilities) and a set of budgetary constraints representing balances of cash, debt, securities, payment delays, and discounts in the supply chain planning. Moreover, the financial approach applies the change in equity (instead of the measure of profit/cost in traditional approaches) as the objective function to be optimized in the presented model.To show the advantages of the presented approach, the results attributed to the financial approach and the traditional approach are compared, where the latter firstly decides on operations and fits finances afterwards. The results indicate that the traditional approach leads to lower change in equity compared to the financial approach. This fact illustrates the inadequacy of treating process operations and finances in isolated environments and pursuing as objective myopic performance indicators such as profit or cost. Moreover, a sensitivity analysis of the parameters using ANOVA for different levels of the parameters under different customer order patterns is performed to enhance the managerial insights of the study. The results clearly reveal the better improvement of using the financial approach over the traditional approach, and convince the decision makers to take advantage of the proposed approach.