The Effect of Remanufacturability of End-of-Use Returns on the Optimal Intertemporal Production Decisions of a Newsvendor

Abstract

In this paper we study a joint manufacturing–remanufacturing problem of a manufacturer under demand uncertainty. Supply of remanufacturable units is constrained by the availability of used and returned cores, which depends on previous supply of new units. Potential cost savings due to remanufacturing in later periods may induce the manufacturer to reduce its short-term profits by artificially increasing its supply in earlier periods. For dealing with this trade-off we formulate an intertemporal optimization problem in a classical two-period newsvendor setting. Exploiting first period information when taking second period supply decisions we provide analytical insights into the optimal strategy and compare this optimal strategy with a previously proposed heuristic, where both first and second period decisions are committed to prior to period 1. Through a comprehensive numerical study we evaluate the associated profit implications.