Optimal production and pricing strategies for a remanufacturing firm

Abstract

The management of remanufactured products has become an important issue for manufacturers due to the associated economic benefits and the increase of sustainability awareness worldwide. Pricing is used as a control mechanism in remanufacturing management to adjust demand for new and remanufactured products and the potential market share cannibalization between these two types of product. This paper proposes a mathematical model to investigate the optimal production and pricing strategies for a monopolistic manufacturer who engages in remanufacturing. The model considers a convex collection and inspection cost, two-quality bins for returns, and the remanufacturing losses. The optimal production and pricing strategies are derived by solving a convex programming model. Our results identify the conditions under which the manufacturer should produce new products, or remanufactured products, or both. Numerical experiments are included to examine the sensitivity of the optimal strategies and gain additional managerial insights.