Abstract
We consider optimal pricing and manufacturing control of a continuous-review inventory system with remanufacturing. Customer demand and product return follow independent Poisson processes. Customer demand is filled by serviceable product, which can be either manufactured or remanufactured from the returned product. The lead times for both manufacturing and remanufacturing are exponentially distributed. The objective is to maximize the expected total discounted profit over an infinite planning horizon. We characterize the structural properties of the optimal policy through the optimality equation. Specifically, the optimal manufacturing policy is a base-stock policy with the base-stock level nonincreasing in the return inventory level. The optimal pricing policy is also a threshold policy, where the threshold level is nonincreasing in the return inventory level.
Highlights
With increasing awareness of sustainable development, and more stringent government regulations, companies are gradually switching focus from profits to triple bottom lines in their business operations
Our paper differs from the previous literature in that we focus on exploring the structural properties of the optimal control policy rather than the performance evaluation
We focus on exploring the optimal pricing and manufacturing strategy
Summary
With increasing awareness of sustainable development, and more stringent government regulations, companies are gradually switching focus from profits to triple bottom lines (profit, people, and planet) in their business operations. We consider optimal pricing and production control of a continuous-review, infinite-horizon inventory system with remanufacturing. Demand that cannot be satisfied by available serviceable inventory is backlogged Lead times for both manufacturing and remanufacturing are exponentially distributed. Our paper differs from the previous literature in that we focus on exploring the structural properties of the optimal control policy rather than the performance evaluation. The final product is sold at a fixed price They obtain the structural properties of the optimal policy, including optimal manufacturing, remanufacturing, and disposal policies. Our paper differs from their work in that we assume that the price of the final product is controllable It could be sold at either high or low price based on the serviceable product inventory.
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