Optimal core acquisition and remanufacturing policies under uncertain core quality fractions

Abstract

Cores acquired by a remanufacturer are typically highly variable in quality. Even if the expected fractions of the various quality levels are known, then the exact fractions when acquiring cores are still uncertain. Our model incorporates this uncertainty in determining optimal acquisition decisions by considering multiple quality classes and a multinomial quality distribution for an acquired lot. We derive optimal acquisition and remanufacturing policies for both deterministic and uncertain demand. For deterministic demand, we derive a simple closed-form expression for the total expected cost. In a numerical experiment, we highlight the effect of uncertainty in quality fractions on the optimal number of acquired cores and show that the cost error of ignoring uncertainty can be significant. For uncertain demand, we derive optimal newsboy-type solutions for the optimal remanufacture-up-to levels and an approximate expression for the total expected cost given the number of acquired cores. In a further numerical experiment, we explore the effects of demand uncertainty on the optimal acquisition and remanufacturing decisions, and on the total expected cost.