Production Decisions of Manufacturing and Remanufacturing Hybrid System Considering Downward Substitution: A Comprehensive Model Integrating Financial Operations

Abstract

Traditional approaches for production decisions of the manufacturing/remanufacturing hybrid system usually focus on physical operations and ignore the corresponding financial aspects. This paper proposes a mixed integer stochastic programming model integrating physical and financial operations based on scenario analysis, which considers the downward substitution between new and remanufactured products and selects financial performance indicator, i.e. economic value added, as the optimal objective function. The prime superiorities of the integrated approach are emphasized through a numerical example, and sensitivity analyses on some critical parameters are conducted. The findings indicate that the integrated approach can not only ensure the stability of hybrid production system, but also significantly improve financial operation efficient and reduce total financial operation cost, and thus eventually brings the manufacturer higher objective value. Furthermore, the advantage of integrated approach in objective optimization is more prominent when manufacturers intend to provide higher service level to customers. Finally, the results proposed in this paper provide applicable suggestions to manufacturers and financial institutions.