AbstractManufacturers in many countries are facing increasing market pressures to use returnable containers. Few studies address the day-to-day operational problems of controlling production and distribution that are inherent in closed systems that reuse containers. In this paper we present a formulation of an optimal configuration of this type of system. In particular, we model the reusable bottle production and distribution activities of a large soft drink manufacturer located in Mexico City, Mexico. Two types of operational research models are combined to form the overall optimization system. A pair of linear programs (one aggregated, the other disaggregated) determines a master plan that is subsequently fined-tuned on a shift-by-shift basis using a difference equation simulation model. The simulation model mimics the heuristic‘rules of thumb’used by production planners for product distribution and container reuse planning. The results of our study indicate that this formulation provides a timely response in the field to key operational problems addressed by no previous approach. Included are better organizational control (through providing one-week production and distribution plans), feedback allowing modification of heuristic rules previously used in controlling the distribution of product and container reuse, and improvement in inventory behaviour such as avoiding shortages. These improvements have resulted in considerable market share gains since the models were implemented.