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Environmental sustainability

Circular Economy in Retail Supply Chains: A New Model for Sustainable Inventory Management

Strategic Insights

— 1 min read

Research on sustainability research has shown that industrialized countries are shifting towards circular economy production models, which prioritize reducing waste and promoting reuse and recycling. However, retail supply chains are still largely based on the linear "take-make-consume-dispose" model, which is unsustainable due to unbalanced energy consumption and waste generation. A new study proposes a closed-loop supply chain management model that reduces waste and promotes recycling, by incorporating the 4Rs model into the newsvendor model. This model is validated through a numerical application that demonstrates its effectiveness in reducing leftover inventory and increasing expected lost sales.

Key Takeaways:

  • The proposed closed-loop supply chain management model reduces waste by considering non-constant salvage value for products at the end of the selling season, depending on their actual conditions.
  • The model is validated through a numerical application that demonstrates a 65% decrease in expected leftover inventory and an 83.4% increase in expected lost sales compared to the linear model.
  • The research incorporates the 4Rs model into the newsvendor model, determining new optimality conditions that imply the overall reduction of waste.
  • The overall profits of the closed-loop supply chain reduce by 26.2% compared to the linear supply chain profit, which can be considered the "cost" of circularity.
  • The proposed model is coherent with the product lifecycle approach and compliant with EU regulations.
  • The research shows that the proposed approach is effective in analyzing the dynamics of supply chain management models and performing scenario analyses on different configurations.

Statistics:

  • Expected leftover inventory decreased by 65% with the closed-loop model.
  • Expected lost sales increased by 83.4% with the closed-loop model.
  • Overall profits of the closed-loop supply chain reduced by 26.2% compared to the linear supply chain profit.
  • 4R model is incorporated into the newsvendor model to determine new optimality conditions that imply the overall reduction of waste.

Sources:

  • A sustainable inventory management model for closed loop supply chain involving waste reduction and treatment. Cleaner Logistics and Supply Chain, 2025, 16():100244.
  • DOI: https://doi-org.sdpl.idm.oclc.org/10.1016/j.clscn.2025.100244
  • Publisher: Elsevier
  • Authors: Aiello, G., Muriana, C., Quaranta, S., Abusohyon, I. A. S.
  • Published by: Universita degli Studi di Palermo, Palermo, Italy, Europe

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