Optimal pricing of reusable and recyclable components under alternative product acquisition mechanisms

Abstract

Product recovery facilities (PRFs), which process discarded product returns as well as sell the recovered components, play a vital role in the promotion of product reuse and recycle. The financial woes of many PRFs can be attributed to the product recovery costs and the inventory control of recovered components. Fluctuations in the demand for recovered components and unpredictability of the pattern and timing of discarded product returns make inventory management difficult. Pricing of recovered components is an effective strategy to control inventory and boost the revenues. This work determines the optimal prices of reusable and recyclable components when a PRF has to adhere to a legislation which limits the disposal quantity. In the first and second scenarios considered, the PRF passively accepts product returns, whereas in the third and fourth, it proactively acquires them. Single type discarded products are processed in the first and third scenarios and multi-type products in the second and fourth. An analysis is carried out to study the effect of return quantities, component yield, product yield, disposal regulation, and the product recovery, holding, and disposal costs on the prices of reusable and recyclable components and the following performance metrics: inventory levels, disposal quantities, and overall profit.