The impact of a substitution policy on the bullwhip effect in a closed loop supply chain with remanufacturing

Abstract

Remanufacturing is a process that usually result in a used product being as good as new. However, not all customers view remanufactured products as similar to new products. Some customers perceive remanufactured products to be inferior in terms of quality compared to new products. In such cases, there is usually a segmentation of markets for new and remanufactured products. This paper focused on the impact of having segmented markets for new and remanufactured products. By developing systems dynamics models, the paper investigated the impact of having a downward substitution policy between new and remanufactured products on the Bullwhip effect in a closed-loop system that permits not only end of life returns but also returns between supply chain players. The findings of this research suggest that, splitting the market in the presence of other returns increased the Bullwhip effect. An interesting finding was that introducing a downward substitution to a split market reduced the Bullwhip effect but not to the level it was before the market was split. The findings of this paper provided some useful managerial insights on the remanufacturing and supply chain dynamics as measured by the Bullwhip effect.