The integral decision on production/remanufacturin

Authors: Rainer Kleber

Publish Date: 2005/11/22

Volume: 28, Issue: 1, Pages: 21-51

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Abstract

This paper examines the financial impact of technological decisions firms face when introducing a new product which as firms increasingly assign responsibility for the recovery of their used products must be expanded to include their influence on available options on how to deal with used products The integrated choice between a low disposal or high remanufacturing level of product recovery and in the second case at which time to start remanufacturing activities and whether the firm would dispose of initial product returns or store them until start time result in three generic options a design for single use b design for reuse and c design for reuse with stockkeeping After introducing a basic dynamic framework consisting of a product life cycle for the demand and a similar development for an external return stream the Net Present Values of the relevant payments connected with each option are given and optimal policies for options b and c are derived An extensive numerical study is used to examine the potential benefits from using the inventory and the applicability of simple heuristic rules for stockkeeping and for determining when to start remanufacturingIdentification of possible solution candidates Steps 1 and 2 in Sydsæter and Hammond 1995 using standard methods of Nonlinear Programming This proofs Proposition 3 Exploring a joint property of all valid cases proofs Proposition 4 while individual properties confirm results stated in Propositions 5–8Comparison of values of NPV c at candidate points against each other Step 3 and with the Net Present Value of investing never textNPV b left tinfty r right as given in 33 Smallest value is the global minimal value of NPV c Step 5 As this requires actual data we will omit this partEquation 39 can be interpreted as follows If t e increases a marginal return ut e arriving at this time is no longer stored but disposed of leading to additional unit costs of e alpha t e c w uleft t e right Since this marginal return is not available for later remanufacturing t x decreases and thus costs for producing a marginal new product at t x are caused given by e alpha t x left cr p c r rightuleft t e right On the other hand storing less returns reduces inventory holding costs per unit by h u int t e t x e alpha t operatornamed tuleft t e right

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