An NPV and AC Analysis of a Stochastic Inventory System with Joint Manufacturing and Remanufacturing

While the net present value (NPV) approach is widely accepted as the right framework for studying production and inventory control systems, average cost (AC) models are more widely used. For the well known EOQ model it can be veri_ed that (under certain conditions) the AC approach gives near optimal results. This paper investigates whether the same holds for two-source systems with joint manufacturing and remanufacturing. It appears that the performance of the AC approach stands or falls with the right choice of the holding cost parameters. Through the analysis of a deterministic model a theoretical basis is provided for choosing the parameters. Then, given this set of holding cost parameters, the performance of the AC approach is tested in a stochastic model

An Inventory Model with Dependent Product Demands and Returns

In this paper an inventory model for a single reusable product is investigated, in which the random returns depend explicitly on the demand stream. Further, the model distinguishes itself from most other research in this field by considering leadtimes and a finite planning horizon. We show that neglecting the dependency between demands and returns of products may lead to bad performance with respect to total average relevant costs. Additionally, our results enable us to determine the minimal recovery probability or the minimal length of the planning horizon for which reuse is profitable

Setting the holding cost rates in a multi-product system with remanufacturing

The Net Present Value (NPV) approach is considered to be the right approach to study inventory and production systems. But, approximate average cost (AC) approach is widely used in both practice and theory. However, the opportunity cost interpretation of AC framework is not that straightforward in systems with joint manufacturing and remanufacturing. In such systems the end-product stock contains both manufactured and remanufactured products. Remanufacturing can be used to convert the returns stock into different products. Due to this complex structure, the valuation of inventories at both stocking points is ambiguous. In this paper we analyze a two-product system with manufacturing and remanufacturing in a deterministic setting. By considering two different models under an NPV approach and an AC approach, we determine holding cost rates such that the two approaches are approximately equivalent. Then we demonstrate the negative effect of traditional valuation methodology on the remanufacturing operation dynamics by using these theoretical results

An Inventory Model with Dependent Product Demands and Returns

In this paper an inventory model for a single reusable product is investigated, in which the random returns depend explicitly on the demand stream. Further, the model distinguishes itself from most other research in this field by considering leadtimes and a finite planning horizon. We show that neglecting the dependency between demands and returns of products may lead to bad performance with respect to total average relevant costs. Additionally, our results enable us to determine the minimal recovery probability or the minimal length of the planning horizon for which reuse is profitable

Simple heuristics for push and pull remanufacturing policies

Inventory policies for joint remanufacturing and manufacturing have recently received much attention. Most efforts, though, were related to (optimal) policy structures and numerical optimization, rather than closed form expressions for calculating near optimal policy parameters. The focus of this paper is on the latter. We analyze an inventory system with unit product returns and demands where remanufacturing is the cheaper alternative for manufacturing. Manufacturing is also needed, however, since there are less returns than demands. The cost structure consists of setup costs, holding costs, and backorder costs. Manufacturing and remanufacturing orders have non-zero lead times. To control the system we use certain extensions of the familiar (s,Q) policy, called push and pull remanufacturing policies. For all policies we present simple, closed form formulae for approximating the optimal policy parameters under a cost minimization objective. In an extensive numerical study we show that the proposed formulae lead to near-optimal policy parameters

Average Costs versus Net Present Value

While the net present value (NPV) approach is widely accepted as the right framework for studying production and inventory control systems, average cost (AC) models are more widely used. For the well known EOQ model it can be verified that (under certain conditions) the AC approach gives near optimal results, but does this also hold for more complex systems? In this paper it is argued that for more complex systems, like multi-source systems, one has to be extremely careful in applying the AC approach on intuition alone, even when these systems are deterministic. Special attention is given to a two-source inventory system with manufacturing, remanufacturing, and disposal, and it is shown that for this type of models there is a considerable gap between the AC approach and the NPV approach

Production planning and inventory control with remanufacturing and disposal

In this paper we consider a stochastic inventory system with production, remanufacturing, and disposal operations. Customer demands must either be fulfilled from the production of new products or by the remanufacturing of used products. Used products are either remanufactured or disposed of. To coordinate production, remanufacturing and disposal operations efficiently, we extend the PUSH and PULL strategies that Van der Laan et al. developed to control a system in which all returned products are remanufactured and no planned disposals occur. The other contributions of this paper are to indicate when and why planned disposals are economically beneficial, and to compare the PUSH-disposal strategy to the PULL-disposal strategy. In addition, we investigate the robustness of the control parameters of the PUSH- and PULL-disposal strategy over the different stages of a product life-cycle

Valuation of inventories in systems with product recovery

Valuation of inventories has different purposes, in particular accounting and decision making, and it is not necessary for a firm to use the same valuation method for both purposes. In fact, it is not uncommon to use accounting books as well as management books. In this chapter, we will only consider inventory values from the perspective of decision making. More specifically, we will analyze the effect of inventory valuation on inventory control decisions (and not the corresponding financial results) for systems with product recovery

Inventory control with product returns: the impact of (mis)information

Product returns are often characterized by a dual uncertainty on time and quantity. In the literature on inventory management with product returns, best forecasts have been associated with methods that use the most informationregarding product return history. In practice however, data is often scarce and unreliable. In this paper we investigate the impact of (mis)information on inventory performance. An exact analysis shows that in case of misestimation the most informed method does not necessarily lead to best performance. Further we provide an extensive simulation study to investigate the impact of misinformation w.r.t. inventory costs.This has relevant implications regarding the investments to make on product return information systems

Improving the supply chain in humanitarian logistics

Médecins sans Frontières (Doctors Without Borders) is an NGO with a special mission: to provide medical care in places ordinary physicians can’t reach. Making sure all their long-term clinics have the right amount of the roughly 2,000 stock keeping units (SKUs) with which each is supplied is an enormous logistical challenge