# Analysis of Downward Product Substitution in a Recoverable System

### Fethullah Gocer, S. Sebnem Ahiska, Russell E. King

#### Abstract

We consider the inventory control problem for an infinite-horizon stochastic hybrid manufacturing / remanufacturing system with product substitution under stochastic demand and returns. Remanufactured and manufactured products are considered as two different products, having different costs and selling prices as well as separate demand streams. Remanufactured products have a higher stock out risk because the remanufacturing capacity is mainly dependent on the amount of returns available for remanufacture. One way to cope with the stock-out issue for remanufactured products is to use a downward substitution strategy, which allows a manufactured product (i.e. higher value item) to be substituted for a remanufactured product (i.e. lower value item) in case the latter runs out of stock. We formulate this problem as Markov Decision Process in order to determine the optimal manufacturing and remanufacturing decisions under product substitution, and through numerical experimentation, we investigate the effects of stochastic demand/return distributions on the profitability of the substitution strategy.

#### References

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#### Paper Citation

#### in Harvard Style

Gocer F., Sebnem Ahiska S. and King R. (2014). **Analysis of Downward Product Substitution in a Recoverable System** . In *Proceedings of the 3rd International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,* ISBN 978-989-758-017-8, pages 108-115. DOI: 10.5220/0004833301080115

#### in Bibtex Style

@conference{icores14,

author={Fethullah Gocer and S. Sebnem Ahiska and Russell E. King},

title={Analysis of Downward Product Substitution in a Recoverable System},

booktitle={Proceedings of the 3rd International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,},

year={2014},

pages={108-115},

publisher={SciTePress},

organization={INSTICC},

doi={10.5220/0004833301080115},

isbn={978-989-758-017-8},

}

#### in EndNote Style

TY - CONF

JO - Proceedings of the 3rd International Conference on Operations Research and Enterprise Systems - Volume 1: ICORES,

TI - Analysis of Downward Product Substitution in a Recoverable System

SN - 978-989-758-017-8

AU - Gocer F.

AU - Sebnem Ahiska S.

AU - King R.

PY - 2014

SP - 108

EP - 115

DO - 10.5220/0004833301080115