Return policy in product reuse under uncertainty

Abstract

One complicating factor in a reverse logistics activity is the uncertainty in the volume of the reverse product flow coupled with uncertain demand. These uncertainties are creating a problem for the reuse businesses because, in order to have a profitable business, their plants need some minimum number of used products to operate efficiently. Several researches have indicated that there is a significant quantity of used products that failed to enter the reverse channel. Therefore finding a way to ensure supply of used products is essential for the viability of the plant. In this paper, we propose the use of financial incentives (also referred to as ‘return policy’) so that adequate supply of the used products is ensured. We present a profit-maximisation model to obtain the optimal return policy. We also obtain a number of managerial guidelines for using marketing and operational strategy variables to influence the reaction parameters so as to obtain the maximum benefit from the market.