Research on Dynamic Closed-Loop Remanufacturing Decision-Making Model

Abstract

This study proposes a dynamic multi-period pricing-ordering decision model for a closed-loop remanufacturing system with product substitution between the new and remanufactured goods. In particular, this study considers both new and remanufactured versions of a single product that are both subject to continuous decay and a multivariate demand function of price and time. The problem is formulated using a dynamic programming model. In analyzing the problem, it is assumed that the firm utilizes a periodic review inventory system in which the sales price can be arbitrarily increased or decreased in response to changes in the market demand over the product lifecycle. The proposal model takes the time-value of money into account. In solving the decision-making problem, it is assumed that the aim is to maximize the total discounted profit over a finite planning horizon. The numerical result shows that the total discounted profit is sensitive to demand parameters, but less sensitive to cost parameter and time-discounting factor parameter. In practice, the proposed pricing-ordering model may instruct frequent price-adjustments in the upward or downward direction in response to changes in the demand structure, with advances in information and Internet technology in a cost-effective fashion.