Collection center location problem with incentive and distance dependent returns

Abstract

This study aims at finding the number and locations of collection centers that should be opened and the amount of the financial incentive that should be offered to customers for each returned product in a setting where collection of end-of-life products from customers is carried out for economic purposes. There is a reservation price for each customer to return a used product. If the company offers an incentive below this price, product holders do not return the product. Customers’ decision on returning the product is affected by two factors: the financial incentive offered for the returned product and proximity to the nearest collection center. A returned product still has a value for the company which can be extracted by subsequent reprocessing activities. The problem is formulated as a mixed-integer nonlinear facility location model to determine the optimal collection center locations and the financial incentive to be offered. Two different approaches are used in terms of the number of collection centers to be opened. In one approach, the number of collection centers is predetermined, whereas in the other fixed cost of opening a collection center is included in the model and the number of collection centers is a decision variable. A two-phase solution methodology is applied. In the first phase, tabu search is used to find the collection center configuration and then in the second phase Fibonacci search is used to determine the financial incentive for the selected collection center configuration.