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

  1. Ahiska, S. S., Kurtul, E., King, R. E., 2013. Determining the value of product substitution for a stochastic manufacturing/remanufacturing system, Proceedings of Industrial and Systems Engineering Research Conference, San Juan, Puerto Rico.
  2. Bayindir, Z. P., Erkip, N., and Gullu, R., 2005. Assessing the benefits of remanufacturing option under one-way substitution, Journal of the Operational Research Society, 56, 286-296.
  3. Bayindir, Z. P., Erkip, N., and Gullu, R., 2007. Assessing the benefits of remanufacturing option under one-way substitution and capacity constraint, Computers & Operations Research, 34, 487-514.
  4. Howard, R. A., 1960. Dynamic Programming and Markov Processes, The MIT Press, Cambridge.
  5. Huang, D., Zhou, H., Zhao, Q. H., 2011. A competitive multiple product newsboy problem with partial product substitution, Omega, 39, 302-312.
  6. Inderfurth, K., 2004. Optimal policies in hybrid manufacturing/remanufacturing systems with product substitution, International Journal of Production Economics, 90, 325-343.
  7. Jin, Y., Ana M., Yihao L., 2007. On the profitability of remanufactured products, 18th Annual Conference of POMS, 4-7.
  8. Kaya, O., 2010. Incentive and production decisions for remanufacturing operations, European Journal of Operational Research, 201, 442-453.
  9. Korugan, A., Gupta, S. M., 2001. Substitution policies for a hybrid system, SPIE Proceedings, Vol. 4193, 1-6.
  10. Korugan, A., 2004. The effect of product substitution at non-boundary inventory states, Optics East. International Society for Optics and Photonics, 224- 233.
  11. Li, Y., Chen, J., and Cai, X., 2006. Uncapacitated production planning with multiple product types, returned product remanufacturing, and demand substitution, OR Spectrum, 28, 101-125.
  12. Li, Y., Chen, J., and Cai, X., 2007. Heuristic genetic algorithm for capacitated production planning problems with batch processing and remanufacturing, International Journal of Production Economics, 105, 301-317.
  13. Morton, T. E., 1971. Asymptotic convergence rate of cost differences for Markovian Decision Processes, Operations Research, 19, 244-248.
  14. Pineyro, P., and Viera, O., 2010. The economic lot-sizing problem with remanufacturing and one-way substitution, International Journal of Production Economics, 124, 482-488.
  15. Robotis, A., Bhattacharya, S., Van Wassenhove, L. N., 2005. The effect of remanufacturing on procurement decisions for resellers in secondary markets, European Journal of Operational Research, 163(3), 688-705.
Download


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