A single-vendor multi-buyer production remanufacturing inventory system under a centralized consignment arrangement

Abstract

The reuse/remanufacturing of economically viable used products that are collected from the end customer has emerged as an inherent part of many supply chain operations due primarily to increased customers awareness and recent environmental protection legislations. This paper considers the environmentally friendly approach of remanufacturing, in the context of a two stage closed loop supply chain comprised of a single vendor and multi buyers where all parties involved operate under a centralized consignment stock agreement. We first develop a mathematical model for this production remanufacturing inventory system and then carry out a thorough model analysis leading to the proof of global optimality of the solutions. We further illustrate the model using several numerical examples followed by a sensitivity analysis that seeks to investigate the impact of key model parameters on the optimal solutions. The obtained results indicate that as the vendor’s setup cost increases relative to the buyers’ ordering cost, the system opts for producing larger lots per setup since this better complies with the economies of scale. The percentage of returned items as well as the holding costs are also found to be key parameters greatly impacting the production lot sizing and the shipping policy of the end item to the downstream buyers.