Remanufacturing and pricing decisions with random yield and random demand

Abstract

Remanufacturing is creating considerable benefit to industry and community, but the uncertainties in both supply and demand sides bring significant difficulty to the production and marketing management of remanufactured products. This paper considers the remanufacturing and pricing decisions when both the remanufacturing yield and the demand for remanufactured products are random. Two typical sequential decision strategies are explored: First-Remanufacturing-Then-Pricing (FRTP) and First-Pricing-Then-Remanufacturing (FPTR). The optimal remanufacturing quantity and selling price of the remanufactured product are developed for each strategy, under negligible salvage value and shortage penalty. We also conduct a numerical study to investigate the scenario where the salvage value and shortage penalty are non-negligible, and explore the parameter sensitivity of the systems. We find that FRTP strategy is more preferable for low remanufacturing cost, market-price sensitivity, and variance of demand randomness, and for high shortage penalty, salvage value, and variance of remanufacturing yield; while FRTP strategy is more preferable for the complementary situation.