Integrated Sustainable Inventory and Remanufacturing Optimization in a Circular Economy: A Two-Echelon Supply Chain Approach Under Carbon Regulations

Abstract

This study presents an integrated sustainable inventory and remanufacturing model within a two-echelon supply chain framework, comprising a manufacturer and a retailer. The model captures the impact of carbon emissions regulations through both carbon tax and cap-and-trade mechanisms, considering the dual nature of demand: price- and time-dependent for manufacturing and circularity-index-dependent for remanufacturing. Unlike conventional multi-echelon models, this study isolates the core dyadic relationship between the manufacturer and retailer to streamline decision-making and emphasize emission and circularity optimization. Using analytical optimization and numerical simulations in MATLAB R2024b, the study demonstrates that the cap-and-trade mechanism offers slightly higher profitability while maintaining environmental targets. Key contributions include the simultaneous integration of deteriorating items, dual demand functions and policy-driven emissions constraints in a supply chain context.