Optimal inventory and pricing policies for remanufacturable leased products

In this paper we consider a company which leases new products and also sells remanufactured versions of the new product that become available at the end of their lease periods. When the amount of end-of-lease items in stock is not sufficient to meet the demand for remanufactured products, the firm may purchase additional cores from a third-party supplier. We develop a dynamic programming formulation for determining the optimal price of remanufactured products, and optimal payment structure for the leased products. Our objective is to maximize the discounted system-wide profit over a finite horizon. The profit function consists of revenues that are obtained from remanufactured product sales and leasing, remanufacturing and manufacturing costs, inventory holding and shortage costs. We consider a consumer choice based demand model for mapping a potential customer into one of the product segments (a remanufactured product customer or a customer for a leased product with a particular lease period) for a given price/lease payment vector. We explore several properties of the discounted profit function and provide insight on the behavior of pricing and inventory policies. We also investigate the effect of key product characteristics such as deterioration in age, cost of shortage in remanufacturable product inventory, and key market characteristics such as relative willingness-to-pay for buying a remanufactured product and relative willingness-to-pay for leasing a new product on optimal pricing policies through a computational study.     

Production planning of a hybrid manufacturing-remanufacturing system under uncertainty within a closed-loop supply chain

This paper deals with the production planning and control of a single product involving combined manufacturing and remanufacturing operations within a closed-loop reverse logistics network with machines subject to random failures and repairs. While consumers traditionally dispose of products at the end of their life cycle, recovery of the used products may be economically more attractive than disposal, while remanufacturing of the products also pursues sustainable development goals. Three types of inventories are involved in this network. The manufactured and remanufactured items are stored in the first and second inventories. The returned products are collected in the third inventory and then remanufactured or disposed of. The objective of this research is to propose a manufacturing/remanufacturing policy that would minimize the sum of the holding and backlog costs for manufacturing and remanufacturing products. The decision variables are the production rates of the manufacturing and the remanufacturing machines. The optimality conditions are developed using the optimal control theory based on stochastic dynamic programming. A computational algorithm, based on numerical methods, is used for solving the optimal control problem. Finally, a numerical example and a sensitivity analysis are presented to illustrate the usefulness of the proposed approach. The structure of the optimal control policy is discussed depending on the value of costs and parameters and extensions to more complex reverse logistics networks are discussed.     

Optimal control of a one product recovery system with leadtimes

In this paper a recovery system for a single product is investigated. Besides a remanufacturing and a manufacturing facility the system consists of one inventory for returned and recoverable items and one for serviceable items. Demands are satisfied from serviceable inventory, which can be replenished by remanufactured returned items, which are as good as new, or by new produced items. Additionally, there is the possibility of disposing of returned items.We determine the cost optimal manufacturing, remanufacturing and disposal rates for the system under the assumptions of a linear cost structure, a finite planning horizon and deterministic and dynamic demand and return rates. Thereby we study two classes of policies, one where backorders are forbidden and another one where they are allowed. In contrast to the existing literature positive leadtimes are considered.     

Optimal production–inventory strategies for a HMMS-type reverse logistics system

The aim of the paper is to find optimal inventory policies in a reverse logistics system with special structure. It is assumed that demand is a known continuous function in a given planning horizon and return rate of used items is a given function. There is a constant delay between the using and return process. We investigate two stores. The demand is satisfied from the first store, where the manufactured and remanufactured items are stored. The returned products are collected in the second store and then remanufactured or disposed. The costs of this system consist of the quadratic holding costs for these two stores and the quadratic manufacturing, remanufacturing and disposal costs.The model is represented as an optimal control problem with two state variables (inventory status in the first and second store) and with three control variables (rate of manufacturing, remanufacturing and disposal). The objective is to minimize the sum of the quadratic deviation from described inventory levels in stores and from described manufacturing, remanufacturing and disposal rates. In this form, the model can be considered as a generalization of the well-known Holt et al. (Planning Production, Inventories, and Work Forces, Prentice-Hall, Englewood Cliffs, NJ, 1960) model with two warehouses. After solving the problem, we give some numerical examples to represent the optimal path in dependence of the demand rates.     

Assessing the Economic Rationality of Remanufacturing Products*

Consideration is given to the factors that affect the determination of the profitability of remanufacturing product. This results in a technique being developed and applied to assess the economic rationality of remanufacturing a variety of products. A study of price preferences from 49 subjects finds that in many cases an original equipment manufacturer (OEM) will earn greater overall profits by offering both new and remanufactured versions of their product. Differences in pricing behavior are noted between both products and individuals. There also appears to be differences in switching behavior. It is, however, reasonable to treat the transfer in preference from new product to remanufactured product as linear over some price range. This assumption allows for a relatively simple calculation of under what circumstances it is economically rational for an OEM to produce both new and remanufactured products and in such situations what the relative prices, sales, and profits should result. The remanufactured products considered are retreaded tires, auto parts, cell phones, toner cartridges, printers/copiers, and disposable cameras. In addition to the article's academic contributions, techniques and insights are offered for practitioners to assist them in understanding the opportunities and implication of pursuing remanufacturing as an addition to their current products.     

考虑可持续性设计的闭环供应链差异定价研究

为了解决回收产品再制造成本增加甚至难以进行再制造的难题,制造商在产品生产的前期就要考虑后期再制造活动的可实施性,即考虑可持续性设计。在考虑可持续性设计情况下,本文针对由一个制造商和一个经销商构成的两级闭环供应链系统,分别建立经销商从事再制造和制造商从事再制造两种模式下的差异定价模型,得到了相应的最优定价策略,并主要针对可持续性努力程度,讨论其与各个最优决策变量、产品单位成本及可持续性努力程度系数之间的关系。研究给出了可持续性努力程度分别对新产品和再制造产品的最优中间价、最优销售价、最优销售量及最优利润的影响,同时论证了新产品和再制造产品的单位成本及其可持续性努力程度系数分别对可持续性努力程度的影响,并对经销商从事再制造和零售商从事再制造两种模式进行了对比分析。     

Remanufacturing decision and sustainability under product life cycle uncertainty

Abstract

For a single type of product, we study a firm's remanufacturing decisions for the product under demand uncertainty from a real options approach. Specifically, we assume that the product life cycle consists of a growth regime with the expected product demand and volatility increasing with respect to time and a decay regime with the expected product demand and volatility decreasing with respect to time while the timing of regime change itself is uncertain as well. Under this framework, this study aims to derive and analyze the demand threshold above which the firm establishes a remanufacturing process in its production system. Moreover, the number of products being remanufactured throughout the life cycle is numerically studied to assess the degree of sustainability due to remanufacturing.     

The role of ambiguity tolerance in consumer perception of remanufactured products

This study examines ambiguity tolerance, perceived quality, and willingness to pay for remanufactured products. We found evidence to support a direct relationship between a consumer's tolerance for ambiguity and their willingness to pay for remanufactured products. There was also support for an indirect relationship between ambiguity tolerance and willingness to pay that is mediated through perceived quality. Extant literature often lacks an empirical justification regarding costing and quality assumptions for remanufactured products. This research provides such justification while also offering an explanation as to why consumers view remanufactured products as being of lower quality and are less willing to pay for them. Those employed in the remanufacturing industry are advised to reduce the level of ambiguity associated with their remanufacturing processes in order to command higher prices for their products in the marketplace.     

经销商再制造的闭环供应链收益-费用契约协调研究

针对经销商从事再制造的闭环供应链最优决策及协调问题,考虑消费者对新产品和再制造品的接受程度不同,本文构建了集中决策和分散决策两种模式下闭环供应链差别定价模型。研究发现,分散决策会造成整个闭环供应链的效率损失;消费者接受度对闭环供应链系统中各方的最优决策及利润具有一定影响,并提出了收益共享-费用分担契约来实现闭环供应链的协调和效率优化。最后通过算例分析,进一步验证了本文所提出的协调机制对闭环供应链的有效性。     

Production capacity planning for multiple products under uncertain demand conditions

This study chiefly deliberates issues regarding capacity allocation for multiple products. When producing multiple products, a manufacturer needs to allocate a favorable production quantity to each product under conditions of uncertain demand since the excess or shortage of a product will in turn cause the loss of profit. The proposed model and the corresponding algorithm in this study are used to find out the optimal capacity allocation under the given probability density function of specific demands and to effectively allocate limited capacity to multiple products with an aim to maximize profit. Finally, the numerical example suggests that the marginal profit, the inventory holding cost, the shortage cost, the loss of excess production, and market demands should be considered in an effort to discover an optimal capacity allocation with regard to multiple products.     

政府补贴对再制造闭环供应链的影响研究

本文在考虑消费者支付意愿存在显著差异、消费者和制造商存在不同政府补贴分配比例下,建立再制造博弈模型,探讨政府补贴再制造品对产品价格、需求以及对消费者、制造商、社会总收益的影响。结论表明,政府补贴有利于促进再制造品的需求,消费者剩余效用、制造商收益以及社会总收益都增加;政府补贴时应不允许制造商涨价,在考虑制造商积极性下尽量补贴给消费者;提高消费者环保意识才是促进再制造的根本途径。     

Speed to Market for Innovative Products: Blessing or Curse?

The relationships among speed to market, quality, and costs are important to managers as they attempt to best establish incentives and set goals for new product development teams, allocate resources for new product development, or create positional advantage in the market. The existing literature suggests that the economic consequences of being late to the market are significant, including higher development and manufacturing costs, lower profit margins, and lessening of the firm's market value. Therefore, traditional logic has held that new product development managers need to manage the trade‐offs among speed to market, quality, and costs. While both scholars and managers have often acquiesced to performance trade‐offs among “faster, better, and cheaper,” this research attempts to improve understanding of the interrelationships between these objectives, and ultimately profit. Based on a survey of 197 managers, faster speed to market is shown to be related to better quality and lower costs; it is not necessary to sacrifice one of these outcomes. Further, the moderating roles of two dimensions of innovativeness (innovativeness to the firm and to the market) are examined on the relationships between speed and quality, as well as speed and profit. Both dimensions of innovativeness positively moderate the relationship between speed to market and quality. For more innovative products (both to the firm and the market), there is a stronger positive relationship between speed and quality than for less innovative products. Further, innovativeness to the firm negatively moderates the relationship between speed and profit. Thus, speed has a less positive impact on profit for highly innovative‐to‐the‐firm products compared with less innovative‐to‐the‐firm products. By being conscious of the projects’ levels of innovativeness (along with prioritizing various performance measures), managers can more rationally decide when to emphasize speed to market based on this study's findings.     

Considering stochastic lead times in a manufacturing/remanufacturing system with deterministic demands and returns

In this paper we study a manufacturing/remanufacturing system with stochastic lead times and a constant demand. We base our approach on previous research in which we have developed models to describe an inventory system with stochastic lead times. In this paper, we first adopt this method to manufacturing/remanufacturing situations, where there are essentially two supply sources for replenishing serviceable inventory. We then provide a solution procedure when a cycle ordering policy is used. Secondly, we investigate the possibility to use a dual sourcing ordering policy in which each order is split between a manufacturing and a remanufacturing process. Finally, we compare the two ordering policies and illustrate how the lead-time patterns influence the economic consequences.     

A hybrid simulation optimization method for production planning of dedicated remanufacturing

This paper presents a hybrid cell evaluated genetic algorithm (CEGA) for optimization of the dedicated remanufacturing system with simulation. The paper first summarizes the special characteristics and problems of the dedicated remanufacturing. The paper then proposes a simulation model with a prioritized stochastic batch arrival mechanism, considering factors that affect the total profit. Based on the simulation model, the CEGA algorithm is developed to optimize the production planning and control policies for dedicated remanufacturing. A case study is provided based on the remanufacturing facility located at Austin, USA     

Postponed product differentiation with demand information update

This paper studies the problem of how to coordinate postponed product differentiation and forecast update to improve manufacturing efficiency. We consider a two-stage model of multiple products with a common component. In stage 1, the manager obtains a prior demand distribution of each product and decides the production quantity of the common component. In stage 2, the demand forecast is updated and the common component is differentiated into various final products. Then the final demand of each product is realized and inventory leftover (shortage) is assessed. We use stochastic programming to model this problem, and propose an optimal bundle-type algorithm to solve it. Furthermore, we develop some simple and effective approximation algorithms for several special cases. Extensive numerical experiments are conducted to show the effectiveness of the approximation algorithms, to compare the performance between the traditional production model and the postponement production model, and to examine the impact of parameters on the performances of the two systems.     

Inventory decisions for substitutable products with stock-dependent demand

We study a retailer’s inventory policy for two products. The products are substitutable and have inventory dependent demand, so a higher inventory level of a product increases its sales. We model the joint effect of demand stimulation and product substitution on inventory decisions by considering a single-period, stochastic demand setting. We provide the first order optimality conditions for the profit maximizing order quantities and interpret them using marginal analysis. We also consider two heuristic solutions that separately account for either demand stimulation or product substitution. Our numerical analysis reveals that the optimal policy by appropriately using sales information that quantifies substitution and demand stimulation can produce significantly higher profits. The profit benefits are lessened under certain circumstances, such as when the two products have similar critical fractile values, suggesting that in such instances the heuristics may be used effectively.     

Product price and performance level in one market or two separated markets under various cost structures and functions

Market characteristics, including intrinsic demand and customer sensitivity on price and product performance level, are distinct at different markets. Comparisons of various product development strategies in one market or two geographically separated markets are conducted for three classes of products: development intensive products (DIPs) with constant unit cost, marginal cost-intensive products (MIPs) with constant fixed cost, and marginal and development intensive products (MDIPs) with non-constant unit cost and fixed cost. Results show that larger demand size, less customer sensitivity on price and/or more sensitivity on performance level lead to more profit, a higher sale price and a not-lower product performance. The customer reservation or the saturation performance level should be generally adopted though the optimal performance level does exist occasionally. Unit cost and/or fixed cost must increase in performance at an increasing rate for the existence of one optimal performance level. Due to the impact of demand size, one high-end (low-end) MDIP or DIP could be introduced into one low-end (high-end) market at a different price if the demand size is significantly large in the low-end market. For DIPs, offering one niche high-end product is not worse than offering the low-end product into two markets. For MIPs with negligible fixed cost, the product line strategy is not worse than the standard product development strategy. Additionally, the product cost reduction approach adopted in one product line has significant effects on the best product development strategy and sequence.     

An inventory control model with consideration of remanufacturing and product life cycle

This paper investigates inventory control policies in a manufacturing/remanufacturing system during the product life cycle, which consists of four phases: introduction, growth, maturity, and decline. Both demand rate and return rate of products are random variables with normal distribution; the mean of the distribution varies according to the time in the product life cycle. Closed-form formulas of optimal production lot size, reorder point, and safety stock in each phase of the product life cycle are derived. A numerical example is presented with sensitivity analysis. The result shows that different inventory control policies should be adopted in different phases of the product life cycle. It is also found that the optimal production lot size and reorder point are not sensitive to the phase length and the demand changing rate.     

Internationalization and the Dynamics of Product Adaptation—An Empirical Investigation

Firms competing in foreign markets can choose to make no changes to the physical product and packaging, called a product standardization policy, which keeps costs low. The main drawback of such a policy is that the product might not satisfy customers. Conversely, firms may choose to modify, or to adapt, the physical characteristics or attributes of a product and its packaging to fit the needs and desires of consumers in different countries better, but this increases development, manufacturing, marketing, packaging, and distribution costs. Though product adaptation is a core aspect of customizing an export market offering, little research has investigated modifying the physical product and packaging. To be successful, an adapted product must add sufficient incremental revenue (through increased sales due to better satisfying customer needs and wants relative to competitive product offerings) such that the additional manufacturing and marketing costs that result from adapting the product are recovered. In this article, a model of the product adaptation process is developed. Using mail surveys, information is gathered from managers in 239 U.S. organizations and 302 South Korean organizations, all of which export products. The goal was to understand better the motivation of firms to adapt their products for export markets as well as the performance implications of adapting products. Furthermore, the model was tested in these two countries to determine if the model is robust and to uncover differences between the United States and South Korea. Using structural equation modeling to analyze the data, a positive association was found between the level of product adaptation and profitability at the project level. Second, U.S. firms appear to be more reactive when adapting products for export markets, doing so when laws and regulations in the export market mandate changes relative to the U.S. market. Conversely, South Korean firms appear to be more proactive and to adapt products even when not required by the governments of export markets. Third, greater international product adaptation is linked to a more responsive marketing organization with customer‐focused practices. Fourth, while a positive link was expected between business unit experience and the extent of international product adaptation, inconsistent results were found between the two country samples. For U.S. firms, it was found that greater experience in international business and product design capability is linked to a higher level of international product adaptation. For South Korean firms, however, a negative relationship was found. Greater international product adaptation occurred with less international business and product design experience. These findings are discussed, and areas for future research are noted.     

An economic production and remanufacturing model with learning effects

Managing inventory in reverse logistics has been receiving much attention in recent years. One inventory problem that has been of interest to researchers is the production and remanufacturing model, where used items are collected and remanufactured to satisfy customer demand. The available models in the literature do not discuss the learning effects in production and remanufacturing processes. This may not be true in industries where labour costs and learning costs are expensive. By modelling these learning effects, management may use established learning models to better utilize capacity, manage inventories, and coordinate production and distribution throughout the chain.This paper extends the production, remanufacture, and waste disposal model by assuming learning to occur in both production and remanufacturing processes. However, this paper also assumes that improvements due to learning require capital investment. Mathematical models are developed, numerical examples are provided, and results are discussed.