Optimal ordering for Product-as-a-Service models with circular economy practices

The Product-as-a-Service (PaaS) model offers the opportunity to implement circular actions such as repairing, reusing, collecting end-of-life products, and recycling. However, adopting circular practices causes more complexities in managing the inventory flow due to repetitive product subscriptions. Accordingly, this paper aims to optimise a PaaS model's order quantity and profit, considering circular economy practices and various quality levels for subscription products. In the proposed model, the subscription firm defines a quality check and repair procedure at the end of each quality period before sending the product to another subscriber. Moreover, the firm recycles end-of-life products and sells the recycled material to the supplier. This study aims to compare a closed-loop PaaS model with the traditional economic order quantity model in terms of operational costs, revenue, and inventory flow. The results show that factors such as the difference between the demand rates of the consecutive periods, the relationship between the recycling capacity and the final collection rate, and the difference between the screening and demand rates have essential roles in alleviating the extra inventory costs related to circular economy actions like reusing, repairing, and recycling.