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This paper addresses the dynamics of a two-product closed-loop supply chain with realistic assumptions on production capacity constraints. The closed-loop supply chain is also subject to unpredictable disruptions, which lead to the non-stationarity of customer demand. The factory employs a production control policy to decide the product type to be processed. We propose a novel production control policy, named the Adaptive Hedging Corridor Policy, which makes decisions on production capacity based on the demand evolution. The proposed strategy is compared with well-known production control policies widely used in literature, such as DDMRP. Simulation results demonstrate the benefits of implementing an adaptive production control as it enables the closed-loop supply chain to enhance customer service level and bullwhip effect. Additionally, a sensitivity analysis is provided to assess the influence of experimental factors on the performance. The analysis highlights the significance of return flows and manufacturing operations for the closed-loop supply chain.

Adaptive production control of two-product closed-loop supply chain dynamics under disruptions