Revenue Management for Reusable Products with Time-Dependent Returns and Breakdowns

Abstract

Purpose An arriving customer requests a product, and a firm makes an accept/reject decision. If accepted, the firm rents out the product and the customer uses it for a random duration of time and returns it to the firm. The returned product is used by other customers. These products are called reusable products. The product may be returned with breakdowns. Unlike the previous papers, this paper considers returns and breakdowns that depend on the rental duration. Methods For the optimal control, a dynamic programming model is formulated. Its state variable keeps track of the number of products for each rental duration to consider those time-dependent rates. To deal with the computational complexity, this paper develops a heuristic based on the linear programming model. Results In the numerical study, the paper shows that the revenue gain using the optimal policy reduces as the initial capacity increases whereas the computational time increases significantly. However, the heuristic produces a near-optimal solution for a large capacity within a short time interval. Conclusion Therefore, the heuristic is recommended especially when a firm has a large initial capacity.