Production and pricing policies in reverse logistics

Abstract

This study deals with production control and pricing policies of a recycling system assuming that the demand of item is deterministic and that a fixed fraction of the demand returns to the production system. To meet the quality requirement of the serviceable item, we take into account of the restriction on raw material composition in the first chapter of the study. We develop a mathematical model with three inventory items, serviceable items, recycled raw material and procured raw material, with the objective of minimizing the total cost. And the model is extended to the case with exponential deterioration of recycled raw material to investigate the economic impact of deterioration caused by environmental elements. In the following chapter, the concept of the minimum allowed quality level of returned items is introduced for the extension of the first chapter. A search procedure is developed based on the Taylor series approximation and the performance of the proposed method is investigated through sensitivity analysis. And the pricing policy in a reverse logistics chain with take-back requirement is studied in the last chapter. The policies of original equipment manufacturer (OEM) and remanufacturer are investigated under two cases, competition and cooperation, through the development of mathematical models with the objective of profit maximization. The first case is solved with the repeated game model and the second one with a search procedure. Also, sensitivity analysis is conducted to analyze the interactions between the two parties.