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

Optimal Policies for Selling New and Remanufactured Products

Peer Reviewedhttps://deepblue.lib.umich.edu/bitstream/2027.42/138248/1/poms12724.pdfhttps://deepblue.lib.umich.edu/bitstream/2027.42/138248/2/poms12724-sup-0001-Supinfo.pdfhttps://deepblue.lib.umich.edu/bitstream/2027.42/138248/3/poms12724_am.pd

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

Integration of mahalanobis-taguchi system and activity based costing in decision making for remanufacturing

Classifying components at the end of life (EOL) into remanufacture, repair or dispose is still a major concern to automotive industries. Prior to this study, no specific approach is reported as a guide line to determine critical crankpins that justifying economical remanufacturing process. Traditional cost accounting (TCA) has been used widely by remanufacturing industries but this is not a good measure of estimating the actual manufacturing costs per unit as compared to activity based costing (ABC). However, the application of ABC method in estimating remanufactured cost is rarely reported. These issues were handled separately without a proper integration to make remanufacturing decision which frequently results into uneconomical operating cost and finally the decision becomes less accurate. The aim of this work is to develop a suitable pattern recognition method for classifying crankshaft into three different EOL groups and subsequently evaluates the critical and non-critical crankpins of the used crankshaft using Mahalanobis-Taguchi System (MTS). A remanufacturability assessment technique was developed using Microsoft Excel spreadsheet on pattern recognition and critical crankpins evaluation, and finally integrates these information into a similar spreadsheet with ABC to make decision whether the crankshaft is to be remanufactured, repaired or disposed. The developed scatter diagram was able to recognize group pattern of EOL crankshaft which later was successfully used to determine critical crankpins required for remanufacturing process. The proposed method can serve as a useful approach to the remanufacturing industries for systematically evaluate and decide EOL components for further processing. Case study on six engine models, the result shows that three engines can be securely remanufactured at above 40% profit margin while another two engines are still viable to remanufacture but with less profit margin. In contrast, only two engines can be securely remanufactured due overcharge when using TCA. This inaccuracy affects significantly the overall remanufacturing activities and revenue of the industry. In conclusion, the proposed integration on pattern recognition, parameter evaluation and costing assists the decision making process to effectively remanufacture EOL automotive components as confirmed by Head of workshop of Motor Teknologi Industri Sdn. Bhd

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

Optimal remanufacturing strategies in name-your-own-price auctions with limited capacity

We study optimal pricing and production strategies faced by a manufacturer in a remanufacturing/manufacturing system. In the reverse channel, returns are collected under a name-your-own-price (NYOP) bidding mechanism. The manufacturer has a limited capacity to produce new and remanufactured products. We characterize the optimal decisions of the consumers and the manufacturer. We find that under the NYOP mechanism, the manufacturer׳s optimal strategies mainly depend on the bidding cost, the cost saving of remanufacturing, the production capacity, and the market scale. In addition, when remanufacturing needs more capacity than manufacturing , the manufacturer may adopt pure manufacturing strategy without remanufacturing. We also compare this mechanism with the traditional list-price mechanism and find that the manufacturer prefers the NYOP mechanism under the conditions of a low reverse market share, a high manufacturing cost, a sufficient capacity, or a low capacity requirement of remanufacturing. Numerical studies investigate the effect of key parameters on the manufacturer׳s profit and some managerial insights are obtained

Essays on Product Acquisition for Value Recovery

This dissertation studies decision problems facing the manufacturer that offers cash incentive to encourage a fraction of its install base to return end-of-use devices. Marketing managers often use such tactics as a promotion tool to motivate sales of new products. Supply chain managers often use such tactics to obtain used products for profitable recovery operations. The first essay, Product Acquisition for Remanufacturing: A Dynamic Analysis, analyzes the performance of buyback and trade-in policies for acquiring products to be remanufactured. A key distinguishing feature of this analysis is the consideration of time dynamics. In particular, both the quantity-condition profile of used products and the market interest in remanufactured products evolve over time, and the manner of evolution is influenced by new product sales. Essay 1 introduces and analyzes a series of models that reflect the dynamics of customer willingness-to-return and willingness-to-pay attitudes, the size and condition of the OEM product install base, the demand for remanufactured product, and the demand for new product. Conventional approaches set trade-in and buyback prices to maximize profits in a single period; however, our analysis show that companies can earn higher profits by adopting a proactive approach. The second essay Final Purchase and End-of-Use Acquisition Decisions in Response to a Component Phase-Out Announcement is motivated by informal talks with supply chain executives from the computer industry. Essay 2 investigates a problem faced by a durable-goods manufacturer of a product that is no longer manufactured but still under warranty. A supplier announces that a component of the product will be phased out and specifies a deadline for the final order. In addition to determining the final order quantity from the supplier, the manufacturer may introduce a trade-in program to generate an alternative supply of the component for the purpose of satisfying warranty claims. We analyze how industry and market characteristics influence the manufactures optimal decisions and profits. The analysis in the second essay lends insight into the determinants of the initial order quantity, the characteristics of a well-designed trade-in program to support component harvesting, and the cost of ignoring a trade-in program for component harvesting. We find that launching a trade-in program and harvesting spare-parts from the returned device is not only a viable response to a supplier\u27s component phase out announcement, under certain conditions, launching a trade-in program is actually profitable

E-business and circular supply chains : increased business opportunities by IT-based customer oriented return-flow management

This paper deals with the application of IT in circular supply chains (CSCs). We consider information on the installed base critical, and present an illustrative example. Next we discuss a framework of different kinds of value contained in a return, and IT-applications useful in supporting its recovery or neutralisation in case of negative externalities. Also we show which kind of CSC is needed for which kind of return. We illustrate our work by three real life case studies.reverse logistics;supply chain management;electronic commerce;product life cycle