Analysis of Inventory Management in Reverse Supply Chain Using Stochastic Dynamic Programming Model

Abstract

Reverse logistics is a critical topic that has captured the attention of government, private entities and researchers in recent years. This increase in the concern was driven by current set of government regulations, increase of public awareness, and the attractive economic opportunities. Also, environmentalists have always demanded Original Equipment Manufacturers (OEMs) to be more involved and be responsible of their products at the end of its life cycle. However, the uncertainty in quality of items returned, and its quantity discourage OEMs from participating in such programs. Because of the unique problems associated and the complex nature of the reverse logistics activities, numerous studies have been carried out in this field. One of those crucial areas is inventory management of End-of-Life (EOL) products. The take back program could possibly bring financial burden to OEM if it is not managed well. Thus, an efficient yet cost effective system should be implemented to appropriately manage the overwhelming number of returns. Previously, we have analyzed the problem based on the assumption that the number of core products returned and disassembled parts and subassemblies are known in advance. In this paper, we introduce a probabilistic approach where different quality levels of for every component disassembled are considered and different probabilities of these qualities given the quality of the returned product. The model utilizes a multi-period stochastic dynamic programming in a disassembly line context to solve the problem, and generate the best option that will maximize the system total profit. A numerical example is given to illustrate the approach. Finally, directions for future research are suggested.