Pricing decisions for short life-cycle product in a closed-loop supply chain with random yield and random demands

Shu-San Gan,I Nyoman Pujawan,Suparno Suparno,Basuki Widodo

doi:10.1016/j.orp.2018.07.002

Abstract

Remanufacturing is a product recovery process that transforms a used product into “like-new” condition. It can extend the useful life of a product and help in reducing waste caused by a huge amount of short life-cycle products. Pricing decisions are an important aspect of successful remanufacturing and can secure the profitability of a firm. Remanufacturing for end-of-use products needs to cope with high uncertainties in terms of the quality and quantity of the acquired product returns. Therefore, after inspection, only a fraction of returns can be recovered through remanufacturing operations. This uncertainty in recovery yield influences the decisions impacting acquisition, wholesale, and retail prices. We propose a pricing model that accommodates the random yield effect of product returns on pricing decisions for short life-cycle products in a closed-loop supply chain. The system consists of a retailer, a manufacturer, and a collector of used-products. We apply a sequential decision approach to determine the optimum pricing decision to maximize supply chain profit, according to a pricing game that places the manufacturer as a Stackelberg leader. We demonstrate the effect of changing parameter values on the wholesale and retail prices as well as on the profitability. The results indicate that the profitability of each player and the supply chain as a whole is affected by the quality of the collected used products, the acquisition price, the shortage penalty, and the remanufacturing costs. Interestingly, reducing variance of random yield results in lower profit for the collector even though the other players and the whole supply chain are better off.

Highlights

Due to recent developments, product life cycle have been becoming shorter and shorter, especially for technology-based products.Coupled with an increasing obsolescence in function and desirability, short life cycle products have created a huge amount of waste
The results show that the remanufacturing cost and the manufacturer’s shortage penalty influence the wholesale price of the remanufactured product and impact the retailer’ s and the manufacturer’s profits
We find that the wholesale price of the remanufactured product is more robust against a shift in the mean value of the random yield than against a change in the random yield’s variance

Summary

INTRODUCTION

Product life cycle have been becoming shorter and shorter, especially for technology-based products. Gan et al (2017) propose a pricing decision model for a closed-loop supply chain involving manufacturer, retailer, and collector, where the remanufactured products are sold via separate sales channel. Both studies have not yet considered uncertainty in the recovery-yield while the returned cores are not always economically or technically feasible to remanufacture. This paper is an extension to Gan et al (2015), where we accommodate the effect of the random recovery yield of product returns on pricing decisions for short life-cycle products in a closed-loop supply chain. The purpose of this study is to determine the optimum wholesale price, retail price, and acquisition price and the relevant product quantities so that the supply chain’s profits can be maximized

LITERATURE REVIEW

NUMERICAL EXAMPLE

CONCLUSION