On how the acquisition of recoverable parts influences the profitability of spare parts management for durables

In the management of spare parts for durables OEMs often face a sharp decline in sales of spare parts when the warranty period of their products ends. One reason for this effect is given by the high profitability of the after sales market which attracts competitors. If the competitors’ main sourcing option consists of repairing used or broken parts, an acquisition of those parts by the OEM might lower competition and increase sales. The purpose of this paper is to provide a case-based framework to offer insights on the opportunity of recovering parts. We consider a two-stage supply chain, where independent repair shops are responsible for handling the repair process. There are two options to meet spare parts demand: repair shops may replace the part with a new one (ordered from the OEM) or they may use a part that they repaired before. While repair shops achieve a larger profit by repairing parts, the OEM would prefer the use of new parts. However, he has no control on demand which might be obtained through buyback of broken parts. Furthermore, the OEM could recover these parts on a higher level, thus reducing production/procurement of new parts. The main contribution of this paper is to elaborate the important effects of recoverable items acquisition on spare parts demand by using a simple deterministic framework thus outlining the impact of different parameters on the profitability of spare parts management.Closed-Loop Supply Chains, Spare Parts, Competition in Product Recovery, Case Study

Applying Revenue Management to the Reverse Supply Chain

We study the disposition decision for product returns in a closed-loop supply chain. Motivated by the asset recovery process at IBM, we consider two disposition alternatives. Returns may be either refurbished for reselling or dismantled for spare parts. Reselling a refurbished unit typically yields higher unit margins. However, demand is uncertain. A common policy in many firms is to rank disposition alternatives by unit margins. We show that a revenue management approach to the disposition decision which explicitly incorporates demand uncertainty can increase profits significantly. We discuss analogies between the disposition problem and the classical airline revenue management problem. We then develop single period and multi-period stochastic optimization models for the disposition problem. Analyzing these models, we show that the optimal allocation balances expected marginal profits across the disposition alternatives. A detailed numerical study reveals that a revenue management approach to the disposition problem significantly outperforms the current practice of focusing exclusively on high-margin options, and we identify conditions under which this improvement is the highest. We also show that the value recovered from the returned products critically depends on the coordination between forward and reverse supply chain decisions.remanufacturing;revenue management;onderdelen;revenues;spare parts inventory

The value of regulating returns for enhancing the dynamic behaviour of hybrid manufacturing-remanufacturing systems

Several studies have determined that product returns positively impact on the dynamics of hybrid manufacturing-remanufacturing systems, provided that they are perfectly correlated with demand. By considering imperfect correlation, we observe that intrinsic variations of returns may dramatically deteriorate the operational performance of these closed-loop supply chains. To cope with such added complexity, we propose a structure for controlling the reverse flow through the recoverable stock. The developed mechanism, in the form of a prefilter, is designed to leverage the known positive consequences of the deterministic component of the returns and to buffer the harmful impact of their stochastic component. We show that this outperforms both the benchmark push system and a baseline solution consisting of regulating all the returns. Consequently, we demonstrate that the operation of the production system is greatly smoothed and inventory is better managed. By developing a new framework for measuring the dynamics of closed-loop supply chains, we show that a significant reduction in the net stock, manufacturing, and remanufacturing variances can be achieved, which undoubtedly has implications both for stock reduction and production stabilization. Thus, the known benefits of circular economy models are strengthened, both economically and environmentally

The boomerang returns? Accounting for the impact of uncertainties on the dynamics of remanufacturing systems

Recent years have witnessed companies abandon traditional open-loop supply chain structures in favour of closed-loop variants, in a bid to mitigate environmental impacts and exploit economic opportunities. Central to the closed-loop paradigm is remanufacturing: the restoration of used products to useful life. While this operational model has huge potential to extend product life-cycles, the collection and recovery processes diminish the effectiveness of existing control mechanisms for open-loop systems. We systematically review the literature in the field of closed-loop supply chain dynamics, which explores the time-varying interactions of material and information flows in the different elements of remanufacturing supply chains. We supplement this with further reviews of what we call the three ‘pillars’ of such systems, i.e. forecasting, collection, and inventory and production control. This provides us with an interdisciplinary lens to investigate how a ‘boomerang’ effect (i.e. sale, consumption, and return processes) impacts on the behaviour of the closed-loop system and to understand how it can be controlled. To facilitate this, we contrast closed-loop supply chain dynamics research to the well-developed research in each pillar; explore how different disciplines have accommodated the supply, process, demand, and control uncertainties; and provide insights for future research on the dynamics of remanufacturing systems

Elements of Green Supply Chain Management

The purpose of the paper was to highlight the elements of green supply chain. The rise in greenhouse emissions and pollution of the environments by firms has precipitated the need for organizations to realign their supply chain operations with a view of conserving the scarce resources. Firms in the hospitality industry rely on energy and water as their key resource inputs in ensuring that they offer better services to clients. The paper looks at how firms can implement several elements of green supply chain in their processes. This is a conceptual paper and the methodology used is a desktop research in which in depth literature review is done to highlight how firms can incorporate green supply chain tools in their supply chains. The analysis is based on previously conducted research from books and relevant journals and articles. The findings of the paper confirm that firms need to implement green supply chain elements as a continuous process to achieve sustainability in the supply chain processes. The study concludes that firms need to enhance the levels of implementing green supply chain practices in managing their operations. This is an emerging supply chain management paradigm that will enable firms to realize long term sustainability in their operations. Key words: Green Supply Chain Management Element

Optimal Decision Making for Capacitated Reverse Logistics Networks with Quality Variations

Increasing concerns about the environmental impact of production, product take-back laws and dwindling natural resources have heightened the need to address the impact of disposing end-of-life (EOL) products. To cope this challenge, manufacturers have integrated reverse logistics into their supply chain or chosen to outsource product recovery activities to third party firms. The uncertain quality of returns as well as uncertainty in return flow limit the effectiveness of planning, control and monitoring of reverse logistics networks. In addition, there are different recovery routes for each returned product such as reuse, repair, disassembling, remanufacturing and recycling. To determine the most profitable option for EOL product management, remanufacturers must consider the quality of returns and other limitations such as inventory size, demand and quantity of returns. The work in this dissertation addresses these pertinent aspects using two models that have been motivated by two remanufacturing facilities whereby there are uncertainties in the quality and quantity of return and capacitated inventories. In the first case, a disposition decision making model is developed for a remanufacturing process in which the inventory capacity of recoverable returns is limited and where there\u27s a constant demand to be met, for remanufactured products that meet a minimum quality threshold. It is assumed that the quality of returns is uncertain and remanufacturing cost is dependent on the quality grade. In this model, remanufacturing takes place when there is demand for remanufactured products. Accepted returns that meet the minimum quality threshold undergo the remanufacturing processes, and any unacceptable returns are salvaged. A continuous time Markov chain (CTMC) is presented as the modeling approach. The Matrix-Geometric solution methodology is applied to evaluate several key performance metrics for this system, to result in the optimal disposition policy. The numerical study shows an intricate trade-off between the acceptable quality threshold value and the recoverable product inventory capacity. Particularly, there are periodic system starvation whenever there is a mis-match between these two system metrics. In addition, the sensitivity analysis indicates that changes to the demand rate for remanufactured products necessitates the need to re-evaluate the existing system configuration. In the second case, a general framework is presented for a third party remanufacturer, where the remanufacturer has the alternative of salvaging EOL products and supplying parts to external suppliers, or remanufacture the disassembled parts to \u27as new\u27 conditions. The remanufacturing processes of reusable products and parts is studied in the context of other process variables such as the cost and demand of remanufactured products and parts. The goal of this model is to determine the return quality thresholds for a multi-product, multi-period remanufacturing setting. The problem is formulated as a mixed integer non-linear programming (MINLP) problem, which involves a discretization technique that turns the problem turns into a quadratic mixed integer programming (QMIP) problem. Finally, a numerical analysis using a personal computer (PC) remanufacturing facility data is used to test the extent to which the minimum acceptance quality threshold is dependent on the inventory level capacities of the EOL product management sites, varying operational costs and the upper bound of disposal rate

The explanatory power of trust and commitment and stakeholders' salience : their influence on the reverse logistics programs performance

There is a growing awareness among practitioners and scholars regarding the importance of Relationship Marketing and its advantages in the supply chain management context. This is particularly appropriate for Reverse Logistics (RL) activities, which are characterized by several relationships between different stakeholders and the firm. Drawing on multiple theoretical approaches, we propose that RL programs result from the combination of external, organizational, and individual factors. We emphasize the role of trust and commitment as key influential elements on the RL systems implementation and their subsequent performance

An integrated decision support framework for remanufacturing in the automotive industry

In today\u27s global economy, firms are seeking any and every opportunity to differentiate from competitors by reducing supply chain costs and adding value to end customers. One increasingly popular option, under growing consumer awareness and increasing legislation, is to reintegrate returned products into the supply chain to achieve economic benefits as well as improve sustainability. An important class of such reverse goods flows has to do with remanufacturing (reman), which refers to activities that restore returned products ( cores ) or their major modules to operational condition for using in place of new product or distributing through other channels (e.g., spare parts). While opportunities abound, some key complications reported in the literature include: 1) difficulty in timing the launch of reman product (while accounting for uncertainties associated with product life-cycle demand and core supply), 2) difficulty with capacity planning for remanufacturing (while accounting for the fact that volumes can be low and that facilities/lines should target multiple product families for economies of scale), and 3) operational difficulties in maintaining efficiencies in production planning and control of remanufacturing activities. These difficulties are mostly attributable to limited visibility and higher levels of uncertainty in reverse logistics (in comparison with forward logistics). Despite advances in the remanufacturing literature in the last two decades (both in the academic literature and practitioner community), there is no integrated decision support framework that can guide companies to successful launch and execution of remanufacturing operations. This is particularly true for companies that engage in both original equipment (OE) service as well as the independent after-market (IAM) in the automotive industry. This research aims to address these limitations by developing a decision support framework and necessary models for effective remanufacturing in the automotive industry. At the strategic level, we propose a unified approach to explicitly model and address issues of capacities as well timing the launch of remanufacturing programs for new product. We derive the optimal remanufacturing policy and extensively studied the drivers of cost-effective remanufacturing program for aftermarket services. Our policies exploit the ability to leverage OE production to support both the OE service operations as well as demand from the IAM. To the best of our knowledge, this research is the first attempt of its kind in the remanufacturing literature, as prior research treated these interrelated decisions separately. Valuable managerial insights are obtained by minimizing the discounted cash outflows caused by appropriate investment and core return inventory building decisions. We show that, under certain conditions, it may be optimal to delay the launch of the remanufacturing program to build up an adequate initial core return inventory. This may help in perfectly substituting virgin parts with remanufactured parts after end of the OE production run. At operational level, efficient production planning and control of reman parts for the supplier heavily impinges on the ability to accurately forecast core returns from customers (e.g., dealers, distributors). There are several challenges to this, including, the volume and diversity of customers served by the supplier, differences among individual customer warehouses in returning cores, large reman product catalogs, changing customer behaviors (often improving core return delays), and data sparsity. In this research we report the evidence for the effectiveness of hazard rate regression models to estimate core return delays in the context of remanufacturing. We investigate a number of hazard rate modelling techniques (e.g., parametric, semi-parametric etc.) using real-world datasets from a leading Tier-1 automotive supplier. Results indicate the effectiveness of the proposed framework in terms of stability and face validity of the estimates and in predictive accuracy

Relationship Between Green Product Design, Reverse Logistics Product Disposition and Business Performance Among Electrical and Electronic Manufacturing Firms

This thesis is derived from the concept of reverse supply chain management and focuses on environmental and economic perspectives of reverse logistics product disposition. The current business environment accentuates the need for recoverable products, and manufacturers are encouraged to design products that facilitate multiple recovery capabilities. Returns with higher residual value deserve attention because business benefits from reverse logistics potentially improve firms‟ performance by extending the useful life of products which had underperformed earlier than expected. The product‟s structure and composition challenge reverse logistics implementation and these necessitate quantitative research on anteceding factors, particularly green product design and resource commitment, on reverse logistics product disposition. The study also examined the successive influence of reverse logistics product disposition on business performance and investigated whether institutional pressures moderate capability-performance relationships. A mail survey was administered to 177 ISO14001 certified E&E manufacturers in Malaysia and 89 usable responses were empirically tested. The research findings revealed that green product design (design for disassembly and design for environment) and resource commitment were antecedents of reverse logistics product disposition. Consequently, repair, remanufacture and recycling contributed to business performance (profitability and sales growth). By maintaining environmental compliance and shareholder interest, hierarchical regression analyses revealed that institutional pressures exerted significant moderating influence to warrant desirable outcome from reverse logistics activities, that is, repair, recondition, remanufacture, recycle and disposal. If firms have interest on reverse logistics implementation, disassemblability takes precedent over recyclability of products. When risk of penalties from regulatory violation is present, firms are motivated to generate benefits via extended producer responsibility. This study provided insights into antecedents and outcome of reverse logistics and acknowledged the moderating influence of institutional pressure, particularly, coercive and ownership pressure. Instead of analysing green product design and reverse logistics as components of green supply chain management, the relationship between both components was investigated. Limitations and suggestions for future research are discussed

Production planning and control of closed-loop supply chains

More and more supply chains emerge that include a return flow of materials. Many original equipment manufacturers are nowadays engaged in the remanufacturing business. In many process industries, production defectives and by-products are reworked. These closed-loop supply chains deserve special attention. Production planning and control in such hybrid systems is a real challenge, especially due to increased uncertainties. Even companies that are engaged in remanufacturing operations only, face more complicated planning situations than traditional manufacturing companies.We point out the main complicating characteristics in closed-loop systems with both remanufacturing and rework, and indicated the need for new or modified/extended production planning and control approaches. An overview of the existing scientific contributions is given. It appears that we only stand at the beginning of this line of research, and that many more contributions are needed and expected in the future.closed-loop supply chains;Production planning and control