Optimal production strategy for a manufacturing and remanufacturing system with return policy

Abstract

This paper considers a monopolistic producer who produces new product in the first period and provides manufactured and remanufactured products in the second period. A return policy in the first period and the competition between the manufactured and the remanufactured products in the second period are jointly considered to develop the optimal production quantity strategies analytically and numerically. We find that if the two products are substitutable, the quantities of the new products manufactured in the first period and the remanufactured products produced in the second period are non-decreasing in the return policy, but the quantity of the manufactured products in the second period is decreasing in the return policy. In this case, the return rate determines the profit level, but the collection rate has little impact on the profit. If the two products are complementary, there is a critical value of the collection rate. When the collection rate is smaller than this value, the production quantities increase in the return policy; otherwise, they decrease in the return policy. In this scenario, the return policy and the collection rate mutually make a positive impact on the profit. Additionally, although a generous return policy is always profitable, it may lead to less production of manufactured and remanufactured products, especially when they are complementary.