A methodology for determining the optimal reverse flow capacities and the breakeven period for a multi products-component remanufacturing problem of an OEM

Abstract

Original Equipment Manufacturers (OEM) that assemble multiple durable products are actively engaged in adopting remanufacturing practices. This study addresses the introduction of a new business proposal, which is carrying out remanufacturing of components from acquired returns by an OEM through the set-up of required Reverse Flow Capacities (RFC), which are capacities for dismantling the returns and capacities for remanufacturing various components. Hence, by incorporating the activity on remanufacturing of components, an OEM creates a new cheaper source for obtaining components, in addition to the conventional sources of manufacturing and/or purchasing. The components obtained from any of these three sources can be used to assemble the multiple durable products for satisfying demands. The study refers to this problem as “Multi Products–Component Remanufacturing (MP-CR) problem”. Furthermore, it is identified that the incorporation of MP-CR problem has tremendous potential in the Indian automobile sector. With these, this study address two strategic issues and an operation issue for the incorporation of new MP-CR problem to an OEM. The first strategic issue is the determination of RFC that must be set-up. This strategic issue is addressed in synchronize with the operational issue of determining the optimal Inventory & Production Plans (I&PP) for assembling multiple products for a given planning horizon. In addition, once the optimal RFC is determined, the second strategic issue is the determination of optimal period (called as Breakeven Period (BEP)), after which the OEM would reclaim the capital investment for setting-up the optimal RFC. In order to address these three interrelated decisions, a systematic methodology is proposed. In the proposed methodology, first an Integer Linear Programming Model is developed for the existing system of the OEM to determine the optimal I&PP. Next, this model is extended to determine the optimal RFC and corresponding optimal I&PP. The solution from both proposed models are used for obtaining the Breakeven Period (BEP), which indicates when the capital investments breakeven. Finally, the proposed methodology is demonstrated by developing suitable data observed from an Indian Automobile OEM.